BMW AG
Annual Report 2020

Plain-text annual report

BMW GROUP REPORT 2020 OUR RESPONSIBILITY. OUR FUTURE. Report on the BMW Group’s economic performance and its ecological and social contributions. LINK TO THE ONLINE REPORT Contents 2 CONTENTS 35 COMBINED MANAGEMENT REPORT General Information and Group Profile Products and Services Production, Purchasing and Supplier Network Employees and Society Report on Economic Position Report on Outlook, Risks and Opportunities Internal Control System Relevant for Accounting and Financial Reporting Processes Disclosures Relevant for Takeovers and Explanatory Comments 36 69 87 105 122 159 179 180 4 7 8 13 23 29 33 About This Report (Part of the Combined Management Report) TO OUR STAKEHOLDERS BMW Group in Figures Report of the Supervisory Board Statement of the Chairman of the Board of Management Dialogue with Stakeholders BMW Stock and Capital Markets in 2020 BMW GroupReport 2020Contents 185 GROUP FINANCIAL STATEMENTS Income Statement for Group and Segments Statement of Comprehensive Income for Group Balance Sheet for Group and Segments Cash Flow Statement for Group and Segments Statement of Changes in Equity for Group Notes to the Group Financial Statements 186 187 188 190 192 194 343 OTHER INFORMATION 3 281 CORPORATE GOVERNANCE 282 291 326 330 331 340 344 357 359 363 364 365 367 368 Fundamental Aspects of Corporate Governance (Part of the Combined Management Report) Remuneration Report (Part of the Combined Management Report) Glossary and Explanation of Key Figures Responsibility Statement by the Company’s Legal Representatives Independent Auditor’s Report Independent Practitioner’s Report Further GRI Information Reporting Concept TCFD-Index NFE-Index BMW Group Fuel Consumption and CO₂ Emissions Information BMW Group Ten-year Comparison Financial Calendar Contacts BMW GroupReport 2020About This Report 4 ABOUT THIS REPORT (PART OF THE COM- BINED MANAGEMENT REPORT) This report represents a new approach to reporting for the BMW Group. For the reporting year 2020, the BMW Group has combined its Annual Report and its Sustainability Report (formerly the Sustainable Value Report) in a single document. It is therefore important for us to begin by briefly explaining the structure and rationale behind the new approach so that you, as a stakeholder in the company, can make the best possible use of the report. Above all, this means being able to find and categorise the information you are looking for both quickly and reliably. Integrated reporting is a dynamic process for the BMW Group that works in both directions. For this reason, we are not only seeking a dialogue based on assertions underpinned by content, we are equally convinced that it enables us to report in the most effective way. This version of the Annual Report is a translation from the German version. Only the original German version is binding. OBJECTIVE SYMBOLS AND OTHER INFORMATION ... The contents of these sections were subjected to a separate limited assurance engagement by the independent auditor. All other audited sections of the report underwent a reasonable assurance audit engagement by the independent auditor. The following symbols help the reader to navigate through the report: Return to previous page Go to table of contents Continued on next page Cross reference As a premium manufacturer, the BMW Group aspires to lead the way in terms of sustainability. It is therefore taking responsibility and placing this topic at the core of its corporate strategy moving forward. This change has involved taking a major step, as the BMW Group is including sustainability as a prime factor in its corporate decision-making processes. This integrated approach obviates the need to pursue a separate sustainability strategy. Sustainability principles – such as the prudent use of resources – are increasingly playing a key role in shaping the BMW Group’s corporate strategy and serving as key parameters for an integrated and multidimension- al approach. As it embraces this process, the BMW Group is build- ing on a solid foundation, given that it has repeatedly set itself ambitious sustainability targets and assumed a pioneering role in this area over decades. For example, the BMW Group was the first company in the automotive sector to appoint an environmental protection officer back in 1973. Under the umbrella of Efficient Dynamics, the BMW Group proceeded to innovate in the field of electrified drivetrains, while at the same time developing highly efficient combustion engines, and has systematical- ly continued to take this dual approach ever since. With a trial fleet of around 600 fully electric MINI E vehicles made available to customers, the BMW Group demon- strated as long ago as 2009 that electric mobility can be a source of great driving pleasure as well as being suitable for everyday use. The all-electric BMW i3 followed in 2013, effectively setting the benchmark for sustainable mobility going forward. In 2020, the Group also achieved its car- bon emissions targets for the new vehicle fleet, thanks to the growing size of its fleet of electrified vehicles. BMW GroupReport 2020 About This Report 5 The BMW Group has long considered it both its obliga- tion and its mission to take a pioneering role within the automotive industry. CONTENT AND STRUCTURE The logical consequence, starting with this report, is to inform stakeholders about the BMW Group’s business performance in a single integrated report. The objective is to provide a clear insight into the BMW Group as a whole with the aim of making its activities transparent, accountable and measurable. At the same time, the in- tention is to make it as easy as possible for readers to familiarise themselves with the contents of the report. For this reason, key information is deliberately repeated at various points in the document, providing a general overview for readers focusing on specific chapters and sections who do not intend to read the entire report. This approach not only underlines the BMW Group’s determination to spearhead the transformation towards sustainability, but also its desire to shape the process and report on it in a transparent manner. This report com- bines the Sustainability Report and the Annual Report in a single Integrated Report, based on the framework of the International Integrated Reporting Council (IIRC). It replaces the two previously separate publications and will be published each year on the date of the Annual Conference. The BMW Group is keen to demonstrate to shareholders, customers, employees and, last but not least, the general public how economic, ecological and social issues can complement one another. In fact, they are often mutually dependent and the pursuit of sus- tainability is the driving force of the Group. The report also includes descriptions of corporate strategy, future development and internal management processes and how the BMW Group, as part of society, creates value in economic, ecological and social terms. Join the conver- sation with the BMW Group Dialogue. On 9 March 2021, the Financial Statements of BMW AG were authorised for issue by the Board of Man- agement and the Group Financial Statements approved for publication. Similar to annual reports in previous years, the new BMW Group Report combines the management reports of Bayerische Motoren Werke Aktiengesellschaft (BMW AG) and the BMW Group in a Combined Manage- ment Report. In accordance with § 289 b and § 315 b of the Ger- man Commercial Code (HGB), BMW AG is required to issue a non-financial statement (NFS) at both Company and Group level. This statement is published jointly for BMW AG and the BMW Group as a non-financial report within the Combined Management Report. In order to identify this content more easily, an NFS index is includ- ed as an appendix that summarises the references for the reader. As in previous years, the NFS has been reviewed. Contents that have been subjected to a limited assurance standard are marked with graphic symbols . All other parts of the Management Report and the Group Financial Statements have been audited to a reasonable assurance standard, unchanged from the previous year. Further information is provided in the Independent Auditor’s Report and the Independent Practitioner’s Report. ... This report also contains information on the attain- ment of targets relating to the now completed sustaina- bility strategy for the period from 2012 to 2020. The BMW Group has published sustainable value reports since 2001, initially every two years and annually since 2012. Prior to this period, the Group had a long tradition of publishing environmental reports, in which it reported transparently on the impact of its operations on the environment, including mitigating measures. Since 2005, the BMW Group has applied Global Reporting Initiative (GRI) standards to report on sustain- ability matters. Since 2008, it has voluntarily complied with the highest GRI application level (“comprehensive option”). Additional GRI-relevant information is provid- ed in the chapter GRI Content Index. This information was also subjected to a limited assurance review. Further GRI Information and in the In 2015, the General Assembly of the United Nations (UN) announced 17 Sustainable Development Goals (SDGs). The SDGs are at the core of the 2030 Agenda, a global action plan aiming to ensure that economic pro- gress is environmentally friendly and socially equitable. The BMW Group has identified the SDGs to which it can make a direct and thus the greatest possible con- tribution with its own sustainability goals. Reference is made to these SDGs at the beginning of the Combined Management Report. BMW GroupReport 2020 About This Report 6 The report is structured to ensure that essential con- tent is easily accessible, even at a glance. With this point in mind, the key information is presented in summarised form at the beginning of each section of the Management Report and subsequently discussed in detail. In addition, information provided in graphical form has been high- lighted to enable key facts to be identified more easily. Connection to Figures in the Group Financial Statements For each topic, an assessment was carried out to identify figures reported in the financial statements that enable a better under- standing of the NFS, and which therefore require to be explained. Where necessary, these figures have been disclosed and ex- plained in the relevant chapters. CURRENT AND FUTURE REPORTING In light of the announcement that the major stand- ards institutions (GRI, SASB, CDSB, CDP / TCFD and IIRC) intend to collaborate, alongside regulatory devel- opments relating to non-financial reporting (including the revision of the Non-Financial Reporting Directive), the reporting environment is likely to continue gaining momentum. At the same time, the BMW Group sees the development of business strategy as an ongoing task, in order to remain flexible within an increasingly dynamic environment. Both aspects will play a key role in future reporting. For this reason, the BMW Group plans to review its non-financial performance indicators in 2021. The figures for fuel consumption, CO2 emissions and power con- sumption are calculated based on the measurement methods stipulated in the current version of Regulation (EU) 715 / 2007. This information is based on a vehicle with basic equipment in Germany; ranges take into account differences in wheel and tyre size selected as well as optional equipment and can change based on configuration. Fuel Consumption and CO2 Emissions Information are available in chapter Other Information. The figures have been calculated based on the new WLTP test cy- cle and adapted to NEDC for comparison purposes. In these vehi- cles, different figures than those published here may apply for the assessment of taxes and other vehicle-related duties which are (also) based on CO2 emissions. For further details of the official fuel consumption figures and official specific CO2 emissions of new cars, please refer to the “Manual on fuel consumption, CO2 emissions and power con- sumption of new cars”, available at www.dat.de/co2/. BMW GroupReport 2020 To Our Stakeholders 7 TO OUR STAKEHOLDERS 8 13 23 29 33 BMW Group in Figures Report of the Supervisory Board Statement of the Chairman of the Board of Management Dialogue with Stakeholders BMW Stock and Capital Markets in 2020 BMW GroupReport 2020 To Our Stakeholders BMW Group in Figures BMW GROUP IN FIGURES KEY NON-FINANCIAL PERFORMANCE INDICATORS GROUP Workforce at year-end 1 Share of women in management positions in the BMW Group 2 AUTOMOTIVE SEGMENT Deliveries 3, 4 Share of electrified vehicles in deliveries CO2 emissions EU New Vehicle Fleet (in g CO2 / km) 5 CO2 emissions per vehicle produced (in tons) 6 MOTORCYCLES SEGMENT Deliveries 8 2016 2017 2018 2019 2020 Change in % 124,729 15.3 129,932 16.0 134,682 17.2 126,016 17.2 120,726 17.8 2,349,962 2,465,021 2,486,149 2,537,504 2,325,179 2.6 124 0.54 4.2 128 0.41 5.7 128 0.40 5.8 127 0.30 8.3 997 0.23 – 4.2 3.5 – 8.4 43.1 – 22.0 – 23.3 145,032 164,153 165,566 175,162 169,272 – 3.4 1 Since the reporting year 2020, a new definition for workforce size has been applied (see Glossary). To enable better comparability, the value for 2019 was adjusted accordingly (2019 before adjustment: 133,778 employees). For the timeframe including and prior to 2018, the share of the employees that are no longer reflected in reporting is about 7.5-8 %. 2 The new definition of the term “employee” (see footnote 1) also has an impact on the proportion of women in management positions. For comparative purposes, the 2019 figure has been adjusted accordingly (2019 before adjustment: 17.5 %). 3 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2016: 311,473 units, 2017: 385,705 units, 2018: 455,581 units, 2019: 538,612 units, 2020: 602,247 units). 4 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see 5 EU including Norway and Iceland; since 2018 value according to WLTP (Worldwide Harmonised Light Vehicles Test Procedure), retroactively calulated as NEDC (New European Driving Cycle). 6 Efficiency indicator calculated on the basis of Scope 1 and Scope 2 emissions (i. e. a market-based method according to GHG Protocol Scope 2 Guidance that excludes climate-impacting gases other than carbon dioxide) from vehicle production Comparison of Forecast with Actual Outcomes. (excluding motorcycles), adjusted for CHP losses, divided by the total number of vehicles produced, including the joint venture BMW Brilliance Automotive Ltd., Shenyang, but excluding contract manufacturing by Magna Steyr and Nedcar. 7 Figure (internal calculation) takes into account flexibilities as defined in regulatory requirements: phase-in with 5 g / km, supercredits BEV / PHEV with 7.5 g / km and eco-innovations with 2.4 g / km. BMW GroupReport 2020 To Our Stakeholders BMW Group in Figures FURTHER NON-FINANCIAL PERFORMANCE FIGURES 9 GROUP Spending on employee training and development (in million €) 1 352 349 373 370 279 – 24.6 2016 2017 2018 2019 2020 Change in % AUTOMOTIVE SEGMENT Deliveries by brand 2 BMW 3 MINI Rolls-Royce Total 3 Production by brand BMW 4 MINI Rolls-Royce Total 4 1,986,167 2,089,854 2,117,854 2,184,939 2,028,841 359,758 4,037 371,729 3,438 364,101 4,194 347,465 5,100 292,582 3,756 2,349,962 2,465,021 2,486,149 2,537,504 2,325,179 2,002,997 2,123,947 2,168,496 2,205,841 1,980,740 352,580 4,179 378,486 3,308 368,685 4,353 352,729 5,455 271,121 3,776 2,359,756 2,505,741 2,541,534 2,564,025 2,255,637 Energy consumption per vehicle produced (in MWh) 5 2.21 2.17 2.12 2.04 2.12 – 7.1 – 15.8 – 26.4 – 8.4 – 10.2 – 23.1 – 30.8 – 12.0 3.9 MOTORCYCLES SEGMENT Production volume BMW FINANCIAL SERVICES SEGMENT New contracts with retail customer 145,555 185,682 162,687 187,116 168,104 – 10.2 1,811,157 1,828,604 1,908,640 2,003,782 1,845,271 – 7.9 1 Training for BMW Group employees and temporary staff at consolidated companies worldwide. Data collated on basis on direct inputs of participants and, to a smaller extent, by extrapolation. Data also includes e-learning formats. 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see 3 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2016: 311,473 units, 2017: 385,705 units, 2018: 455,581 units, 2019: 538,612 units, 2020: 602,247 units). 4 Production figures including the Joint Venture BMW Brilliance Automotive Ltd., Shenyang (2016: 305,726 units, 2017: 396,749 units, 2018: 491,872 units, 2019: 536,509 units, 2020: 602,935 units). 5 Efficiency ratio calculated on basis of electricity, heat, natural gas and heating oil consumption of vehicle production (excluding motorcycles), adjusted for CHP losses, divided by total number of vehicles produced, excluding contract manufacturing by Magna Steyr and Nedcar, Comparison of Forecast with Actual Outcomes. plus energy consumption of engine plants and electric motors as well as battery production divided by engine production in Hams Hall, Steyr, Munich and BMW Brilliance Automotive Ltd. in Shenyang. BMW GroupReport 2020 To Our Stakeholders BMW Group in Figures KEY FINANCIAL PERFORMANCE INDICATORS GROUP Profit / loss before tax in € million AUTOMOTIVE SEGMENT EBIT margin in % RoCE in % MOTORCYCLES SEGMENT EBIT margin in % RoCE in % FINANCIAL SERVICES SEGMENT RoE in % * The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, Note 6 to the Group Financial Statements). 10 2016 2017 2018 * 2019 2020 Change in % 9,665 10,675 9,627 7,118 5,222 – 26.6 8.9 74.3 9.0 33.0 21.2 9.2 77.7 9.1 34.0 18.1 7.2 49.8 8.1 28.4 14.8 4.9 29.0 8.2 29.4 15.0 2.7 12.7 4.5 15.0 – 44.9 – 56.2 – 45.1 – 49.0 11.2 – 25.3 BMW GroupReport 2020 To Our Stakeholders BMW Group in Figures FURTHER FINANCIAL PERFORMANCE FIGURES 11 in € million 2016 2017 2018 2019 2020 Change in % Total capital expenditure 1 Depreciation and amortisation Free cash flow Automotive segment Group revenues 2 Automotive Motorcycles Financial Services 2 Other Entities Eliminations 2 Group profit / loss before financial result (EBIT) 2 Automotive Motorcycles Financial Services 2 Other Entities Eliminations 2 Group profit / loss before tax (EBT) 2 Automotive Motorcycles Financial Services 2 Other Entities Eliminations 2 Group income taxes 2 Profit / loss from continuing operations 2 Profit / loss from discontinued operations Group net profit / loss 2 Earnings per share 2 in € Pre-tax return on sales 2, 3 in % 5,823 4,806 5,792 94,163 86,424 2,069 25,681 6 7,112 4,822 4,459 98,282 85,742 2,272 27,567 7 8,013 5,113 2,713 96,855 85,846 2,173 27,705 6 7,784 6,017 2,567 104,210 91,682 2,368 29,598 5 6,222 6,143 3,395 98,990 80,853 2,284 30,044 3 – 20,017 – 17,306 – 18,875 – 19,443 – 14,194 9,386 7,695 187 2,184 – 17 – 663 9,665 7,916 185 2,166 170 – 772 – 2,755 6,910 – 6,910 9,899 7,888 207 2,194 14 – 404 10,675 8,717 205 2,207 80 – 534 – 2,000 8,675 – 8,675 8,933 6,182 175 2,172 – 27 431 9,627 6,977 169 2,143 – 45 383 – 2,530 7,097 – 33 7,064 7,411 4,499 194 2,312 29 377 7,118 4,467 187 2,272 – 96 288 – 2,140 4,978 44 5,022 4,830 2,162 103 1,721 36 808 5,222 2,722 100 1,725 – 235 910 – 1,365 3,857 – 3,857 – 20.1 2.1 32.3 – 5.0 – 11.8 – 3.5 1.5 – 40.0 27.0 – 34.8 – 51.9 – 46.9 – 25.6 24.1 – – 26.6 – 39.1 – 46.5 – 24.1 – – 36.2 – 22.5 – – 23.2 10.45 / 10.47 13.07 / 13.09 10.60 / 10.62 7.47 / 7.49 5.73 / 5.75 – 23.3 / – 23.2 10.3 10.9 9.9 6.8 5.3 – 22.1 1 Expenditure for capitalised development costs, other intangible assets and property, plant and equipment. 2 The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, Note 6 to the Group Financial Statements). 3 Group profit before tax as a percentage of Group revenues. BMW GroupReport 2020 To Our Stakeholders BMW Group in Figures 12 BMW GROUP DELIVERIES OF AUTOMOBILES ¹, ² BMW GROUP REVENUES in 1,000 units in € billion 2,350.0 2,465.0 2,486.1 2,537.5 2,325.2 110 94.2 98.3 96.9 104.2 99.0 55 0 2,600 1,300 0 2016 2017 2018 2019 2020 2016 2017 2018 3 2019 2020 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2016: 311,473 units, 2017: 385,705 units, 2018: 455,581 units, 2019: 538,612 units, 2020: 602,247 units). 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. Comparison of Forecast with BMW GROUP PROFIT / LOSS BEFORE FINANCIAL RESULT (EBIT) BMW GROUP PROFIT / LOSS BEFORE TAX in € million in € million 11,000 9,386 9,899 8,933 11,000 9,665 10,675 9,627 5,500 0 7,411 4,830 5,500 0 7,118 5,222 2016 2017 2018 3 2019 2020 2016 2017 2018 3 2019 2020 3 The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, Note 6 to the Group Financial Statements). BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 13 REPORT OF THE SUPERVISORY BOARD The excellent collective performance of the BMW Group gives the SUPERVISORY BOARD confidence as we go into 2021. Norbert Reithofer Chairman of the Supervisory Board BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board DEAR SHAREHOLDERS, We look back on 2020 as an exceptionally challenging year, dominated as it was by the impact of the coronavirus pandemic. The year unfolded very differently from the way we had anticipated at the end of 2019. Nevertheless, despite the challenging conditions, the BMW Group remained focused on its targets and pressed ahead with its future-ori- ented projects. Thanks to resolute crisis management and rigorous digital teamwork at all levels, the BMW Group achieved a respectable result for the year, with deliveries to customers in the fourth quarter at their highest level to date. This excellent collective performance gives us confidence as we go into 2021. Sustainable, digitalised mobility, combined with an outstanding overall customer experience, are the key supporting pillars of the BMW Group’s corporate strategy. As a pioneer of new technologies and champion of sustainability in economic, social and ecological terms, the BMW Group will continue on its transformational journey to becoming a tech company, thereby strengthening its position in the premium segment in the process. Focus of Supervisory Board activities during the past financial year The Supervisory Board performed the duties incumbent upon it with the utmost diligence in 2020, rigorously monitoring the management of the BMW Group in a conscientious manner. It also advised the Board of Management on matters relating to the leadership and strategic evolution of the company. In five meetings of the full Supervisory Board – all lasting significantly longer than usual due to the circumstances and including one two-day meeting – together with the Board of Management we deliberated in great detail on the operating performance of the BMW Group. The Board of Management also kept the Supervisory Board informed of any matters of significance outside the framework of formal meetings as the need arose. In addition, the Chairmen of the Supervisory Board and the Board of Management engaged in direct dialogue on current issues, as did the Chairman of the Audit Committee and the Board of Management member responsible for Finance. Conference calls were also held between the Members of the Board of Management, the Board of Management member responsible for Finance, the Chairman of the Supervisory Board and the Chairman of the Audit Committee as a supplementary measure. The Board of Management’s regular reports on the Group’s current performance were dominated by pandemic-related matters during the year under report. In view of the rapid spread of coronavirus in the spring, additional meetings of the Audit 14 The SUPERVISORY BOARD is convinced that the BMW Group will continue to expand its position in the premium segment through its enduring commitment to sustainability in economic, social and ecological terms. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 15 Committee and the Presiding Board were scheduled to facilitate the monitoring of production, sales and liquidity developments in a prompt manner. The Board of Man- agement kept us constantly informed regarding the impact of the pandemic on the BMW Group’s business performance, providing up-to-date status reports on sales, pro- duction, liquidity and the Financial Services segment. Information on vehicle deliveries to customers was separately analysed by market and model, focusing particularly on the electrified variants. The reports also dealt with the competitive situation in general and the development of new business and transaction volume as well as the risk situation in the Financial Services segment. The Board of Management pointed out deviations from the original forecast and presented measures to mitigate the impact of the pandemic. It also outlined potential developments based on a range of possible scenarios. The size of the workforce and the attainment of the decarbonisation targets set out by the EU Commission were also a subject of discussion. Furthermore, the Board of Management provided us with information on a number of important current topics, including the opening of the Competence Centre for electric drivetrain production in Dingolfing and BMW Brilliance Automotive’s second battery centre in China as well as the new communication concept for the futuristic technology showcase #NEXT Gen 2020, which was held virtually for the first time. The reports also addressed the topics of product quality and the progress of the HERE joint venture. The Supervisory Board deliberated in depth on the BMW Group’s evolving corporate strategy, which is now clearly focused on the progressive transformation of its drivetrain technology towards electric mobility. The Board of Management outlined to us the renewed production network strategy, which is based on converting the Munich plant to assemble the new vehicle architecture and the planned cluster architecture at the BMW Group plant in Hungary. As a core component of the BMW Group’s overarching corporate strategy, we also took an in-depth look at the sustainability aspect, which is embedded at every stage along the supply chain, the production process and the entire life cycle of our products. The Supervisory Board also deliberated at length on important issues arising within the Board of Management’s various key areas of responsibility. Purchasing, for instance, reported on the status of the supply chain and the purchasing strategy regarding raw materials for electric mobility. The Board of Management member responsible for Fi- nance gave a talk on the Group’s financing system, focusing in particular on liquidity management and financial market risk management. When reporting on the Financial Services segment, the main focus was on strategy as well as business performance and the risk situation. We also analysed the BMW Group’s strategic cooperations in great detail, particularly the further course of the “Your Now” joint venture strategy and the market situation in China. In light of the coronavirus pandemic and the accompanying restrictions on events involving large numbers of people, in early April we agreed that the 2020 Annual General Meeting should be held as a virtual event without the physical presence of shareholders. An important topic for the Supervisory Board in 2020 was the revision of the Board of Management’s remuneration system for the financial years 2021 and beyond, in line with the new version of the German Corporate Governance Code. After the Personnel Committee had completed the initial groundwork, in the third quarter we intensively discussed proposals for a new remuneration concept with the help of an independent remuneration consultant. On this basis, in December we worked through the details of the revised remuneration system, focusing in particular on setting targets for the variable remuneration components. The Supervisory Board finally passed a resolution approving the new remuneration system, including a standardised service agreement, new target remuneration levels and total remuneration caps. The Supervisory Board reviewed the structure and level of Board of Management re- muneration for the financial year 2020, whilst also taking into account the BMW Group’s business performance in 2020. The salaries of senior executives and employees within Germany as a whole were also taken into account. After analysing comparative studies provided by an external remuneration consultant, we concluded that the remuneration of Board of Management members is appropriate. Detailed information on the remu- neration of the Board of Management is provided in the Remuneration Report. The change to the system of Board of Management remuneration was also the focus of one-on-one discussions between myself and investor representatives concerning Supervisory-Board-related issues, including the question of the independence of Su- pervisory Board members. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 16 The main focus of SUPERVISORY BOARD WORK was on the continued development of corporate strategy, particularly the expansion of electric mobility. In the third quarter, the Supervisory Board devoted a great deal of time to exam- ining the BMW Group’s revised forecast for the period from 2021 to 2026. The Board of Management outlined the fundamental changes made to mitigate the impact of the coronavirus pandemic compared with the forecast presented one year earlier as well as the ambitious long-term targets in the forecast. It also pointed out the higher degree of volatility and uncertainty in terms of external framework conditions, whilst reiterating the aim of achieving continuous overall growth, particularly in the field of electric mobility. After thorough examination, the Supervisory Board approved the BMW Group’s long-term corporate plan. At the final meeting held in 2020, the Board of Management presented the annual budget for corporate development in the financial year 2021 and discussed it in exhaus- tive detail with the Supervisory Board. With the advance of digitalisation, data protection and cybersecurity are becoming increasingly important issues. For this reason, we requested a report on the current status from the Board of Management. We also discussed the topic of diversity at considerable length. The Board of Man- agement reported on the current status of the diversity concepts developed by the Group and the target achievement at various levels as well as future targets. As its target for the proportion of women on the Board of Management from 1 January 2021 to 31 December 2025, the Supervisory Board has stipulated that the Board of Management should continue to include at least one female member. The Supervisory Board’s agenda also included a number of internal issues during the year under report. For example, the Supervisory Board updated its rules of pro- cedure and published them online in accordance with the recommendation of the revised German Corporate Governance Code. At the Supervisory Board meeting held in March, we also discussed the results of our annual efficiency self-assessment in detail. The Supervisory Board has also benefited from advances in digitalisation, a key element of our corporate strategy, by setting up a digital boardroom to improve the flow of information. Due to coronavirus-related restrictions, beginning in the spring, the meetings themselves were held as face-to-face events with digital participation offered to enable all members to attend. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 17 We also discussed corporate governance standards at the BMW Group. Based on a self-assessment, we concluded that the composition of the Supervisory Board at 31 December 2020 was in line with the targets stipulated in the diversity concept, the competency profile and other composition targets. We updated the competency profile and broadened the definition of the various areas of expertise. An overview showing each individual Supervisory Board member’s areas of expertise is provided in the Statement of Corporate Governance on our website. In December, the Board of Management and the Supervisory Board issued their Declaration of Compliance with the German Corporate Governance Code. We will comply with the recommendations of the Code as amended on 16 December 2019 without exception. The wording of the Declaration of Compliance can be found in the Statement of Corporate Governance on our website. The Supervisory Board took part in a variety of further training measures in 2020. In July, for instance, we visited the BMW Autonomous Driving Campus in Unter- schleißheim near Munich and discussed the topic of automated driving at great length through several presentations. The presentation held by an external expert on artificial intelligence gave us additional food for thought on the importance of software for the future of the automotive industry, which we then explored in greater depth in a subsequent discussion. In September, the Supervisory Board attended a workshop on drivetrain technology at the BMW and MINI Driving Academy in Maisach near Munich, including a driving session. No conflicts of interest arose on the part of members of the Supervisory Board during the year under report. Significant transactions involving Supervisory Board members and / or other related parties as defined by IAS 24, including close relatives and intermediary entities, were subject to review on a quarterly basis. We reviewed the efficiency of our work in the Supervisory Board by completing a revised and expanded questionnaire as well as holding supplementary discussions with the Chairman. Overall, there is a high degree of satisfaction with the work of the Supervisory Board. Cooperation, both within the Supervisory Board itself and with the Board of Management, was unanimously assessed as being constructive and trusting. However, we intend to discuss suggestions for improving individual aspects of cooperation in the new financial year. Sustainability is at the heart of the BMW Group’s broader strategy, encompassing all relevant aspects, from the supply chain to production and the product life cycle. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 18 Description of Presiding Board activities and committee work The Supervisory Board has established a Presiding Board and four committees. The chairpersons of these two bodies reported in detail on the work of their committees at each subsequent Supervisory Board meeting. You can read more about the duties, the composition and the working methods of the Presiding Board and various other Supervisory Board committees in the Statement of Corporate Governance on our website. Due to the exceptional challenges of the past financial year caused by the corona- virus pandemic, the Presiding Board and the Audit Committee intensified their work in order to fulfil their duties in a suitable manner. Additional meetings were held to provide the Presiding Board with prompt information on the current status of sales and production and the Audit Committee with information on liquidity and the Financial Services business. The Presiding Board held six meetings and one conference call during the financial year 2020. Together with the Board of Management and senior heads of department, we prepared the detailed agenda of full Supervisory Board meetings (unless a committee was responsible for doing so) and made suggestions for topics to be reported on at Supervisory Board meetings. The Audit Committee held seven meetings and three conference calls during the year under report. The meetings held in February and March 2020 focused primarily on preparing the Supervisory Board meeting at which the financial statements for the financial year 2019 were to be discussed and examined. After obtaining the auditor’s Declaration of Independence, the Audit Committee recommended to the full Supervisory Board that PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (“PwC”) be proposed for election as auditor at the 2020 Annual General Meeting. There were no indications of conflicts of interest, grounds for exclusion or lack of independence on the part of the auditor. The Audit Committee discussed PwC’s fee proposal for audits of the year-end Com- pany and Group Financial Statements 2020 and the review of the Half-Year Financial Report and deemed it appropriate. Following approval by the Annual General Meeting held in May 2020, the Audit Committee appointed PwC for the relevant engagements and specified audit focus areas. It also approved the scope of non-audit services to be provided by PwC and subsequently received regular reports on the relevant matters. The quality of the audit was a subject of discussion at the Supervisory Board meetings held in February and June. The Board concluded that the audit was of good quality. The Board of Management presented us with the Sustainable Value Report as well as the separate combined non-financial report of BMW AG and the BMW Group for the financial year 2019. Moreover, the representatives of PwC presented the findings of their review, which had been performed as a “limited assurance” engagement. At our meetings we also discussed preparations for the new Integrated Group Report and the procedural changes required with regard to reporting and the external audit. We decided that the non-financial (Group) statement should again be reviewed by PwC in the form of a “limited assurance” engagement. We also discussed the quarterly statement with the Board of Management prior to their publication. Representatives of the external auditors were present when the Half-Year Financial Report was discussed at the beginning of August 2020. The Audit Committee again dealt intensively with the topic of compliance within the BMW Group during the year under report. In his regular report, the Chairman of the Compliance Committee provided a summary of ongoing compliance-related proceedings and presented a raft of measures aimed at promoting the continuous improvement of the compliance system. The Head of Corporate Quality also reported on the subject of technical compliance. The relevant head of department also presented the Supervisory Board a description of tax and customs compliance management. Furthermore, the Audit Committee regularly discussed the status of the EU Com- mission’s investigation into the antitrust allegations connected with the former working groups of several German automobile manufacturers and was provided with updates from the Board of Management regarding the potential further course of proceedings. In relation to proceedings initiated by the German Federal Cartel Office and ter- minated in 2019 with a fine of € 28 million regarding the purchase of long steel by the BMW Group, the Supervisory Board addressed the question of whether it had a duty to act on this matter. The Supervisory Board sought counsel from external lawyers in order to obtain legal certainty. On the recommendation of the Audit Committee and after carefully considering the advantages and disadvantages for the BMW Group, based BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 19 on an expert legal opinion and oral explanations, the Supervisory Board decided not to assert any claims for damages against current or former members of the Board of Management of BMW AG in connection with the fine imposed by the German Federal Cartel Office on 21 November 2019. In addition, the main findings of internal audits conducted by Corporate Audit as well as details of advance audit planning were reported to the Audit Committee. We discussed the effectiveness of the BMW Group’s current risk profile and risk manage- ment system on several occasions, including ongoing measures to improve the internal control system on a continuous basis. The Audit Committee was regularly provided with detailed information regarding major legal disputes and proceedings. These included, in particular, an investigation initiated in December 2019 by the US Securities and Exchange Commission (SEC) into possible violations of US securities laws in relation to the reporting of vehicle delivery figures in the USA. The case was concluded in September 2020 with a settlement of 18 million US dollars. Our agenda also included considering an audit report relating to the European Market Infrastructure Regulation (EMIR). In this context, the independent auditor confirmed the effectiveness of the system currently applied by BMW AG to ensure compliance with the regulatory requirements. The Audit Committee concurred with the decision of the Board of Management to raise the Company’s share capital in accordance with Article 4 (5) of the Articles of Incorporation (Authorised Capital 2019) by € 822,000 and issue a corresponding number of new non-voting bearer shares of preferred stock in conjunction with the Employee Share Programme. The SUPERVISORY BOARD and the BOARD OF MANAGEMENT will comply with the recommendations of the German Corporate Governance Code without exception. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 20 The Personnel Committee focused primarily on the topic of Board of Management remuneration. In its five meetings during the year under report, the Personnel Commit- tee reviewed the appropriateness of the Board of Management’s remuneration for the financial year 2019, duly taking the impact of the coronavirus pandemic into account. During the second half of the year, the Committee focused on revising the remuneration system for Board of Management members. The Personnel Committee also performed the groundwork for the full Supervisory Board to appoint a Board of Management member responsible for Development and granted approval for members of the Board of Management to assume mandates outside the Group in exceptional cases. The Nomination Committee convened twice during the financial year 2020. Taking into account the German Corporate Governance Code (DGCC) and the composition requirements adopted by the Supervisory Board, the Nomination Committee addressed the issue of potential replacements for shareholder representatives on the Supervisory Board in the coming years. The Mediation Committee, which is prescribed by law, did not need to convene during the financial year 2020. Composition of the Board of Management With effect from 1 July 2020, Klaus Fröhlich retired from his position as Board of Management member responsible for Development. We would like to thank Mr Fröhlich for his many years of successful and effective work for BMW AG and particularly wish to express our appreciation for the momentum he generated over a 30-year period in advancing the BMW Group’s role as a pioneer of new technologies. The Supervisory Board appointed Frank Weber to the Board of Management as his successor with effect from 1 July 2020. Mr Weber joined the BMW Group in 2011 as Head of Total Vehicle Development and was most recently responsible for the Rolls- Royce product line as well as the BMW luxury class. In light of the various management positions he has previously held in development, Mr Weber is excellently qualified to assume responsibility for Development at the BMW Group and we certainly wish him all the best in his new role. The Supervisory Board extended the mandate of one Board of Management member during the year under report. Composition of the Supervisory Board, the Presiding Board and the Supervisory Board’s committees Prof. Renate Köcher left the Supervisory Board with effect from the end of the Annual General Meeting 2020. We would like to thank Prof. Köcher for her many years of constructive work and faithful cooperation while serving on the Supervisory Board. The Annual General Meeting elected Anke Schäferkordt as a new member of the Supervisory Board. Ms Schäferkordt has a wealth of knowledge and experience in the field of communication and media, and, in her capacity as an independent financial expert, ideally complements the Supervisory Board’s overall composition. The Annual General Meeting re-elected me as a member of the Supervisory Board and I was again elected Chairman at the subsequent meeting of the Supervisory Board. In view of the considerable length of time he has been a member of the Supervi- sory Board and mindful of the Supervisory Board’s efforts to appoint an independent chairperson to the Audit Committee as defined in the German Corporate Governance Code, Dr Karl-Ludwig Kley resigned his membership and chairmanship of the Audit Committee with effect from the end of the 2020 Annual General Meeting. We wish to thank Dr Kley for his many years of knowledgeable and committed leadership of the Audit Committee and are delighted that he will continue to contribute his expertise as a member of the Supervisory Board. Dr Kurt Bock was subsequently elected as member and Chairman of the Audit Committee. Dr Bock has been a member of the Supervisory Board since 2018 and, as a former long-serving Chief Financial Officer and Chairman of the Board of Executive Directors of BASF SE, has a great deal of expertise in the fields of accounting, financial reporting and auditing. An overview of the composition of the in this report and in the separate Supervisory Board and its committees is provided both Statement on Corporate Governance, which is available on our website together with the curricula vitae of Supervisory Board members. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 21 Disclosure of attendance at meetings by individual members Examination of financial statements and the profit distribution proposal The attendance rate at the meetings of the Supervisory Board, its committees and the Presiding Board was over 99 %. The table below shows attendance by individual member: Supervisory Board Member Meetings Attendance Attendance in % Dr.-Ing. Norbert Reithofer Manfred Schoch Stefan Quandt Stefan Schmid Dr. Karl-Ludwig Kley Dr. Kurt Bock Christiane Benner Verena zu Dohna-Jaeger Dr.-Ing. Heinrich Hiesinger Prof. Dr. Reinhard Hüttl Susanne Klatten Prof. Dr. Renate Köcher 1 Horst Lischka Willibald Löw Simone Menne Dr. Dominique Mohabeer Brigitte Rödig Anke Schäferkordt 2 Dr. Vishal Sikka Dr. Thomas Wittig Werner Zierer 1 Supervisory Board Member until 14 May 2020. 2 Supervisory Board Member since 14 May 2020. 29 27 29 27 24 10 5 5 5 5 7 1 5 5 5 5 5 4 5 5 5 29 27 29 27 24 10 5 5 5 5 7 1 5 5 5 5 5 4 4 5 5 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (“PwC”) was ap- pointed as external auditor for the financial year 2020. PwC conducted a review of the condensed Interim Group Financial Statements and the Interim Group Management Report for the six-month period ended 30 June 2020 and presented its findings to the Audit Committee. No issues were identified that might indicate that the condensed Interim Group Financial Statements and Interim Group Management Report had not been prepared in accordance with the applicable provisions in all material respects. PwC, for the second time, audited the Company and Group Financial Statements for the financial year 2020 as well as the Combined Management Report, including the Statement on Corporate Governance for the financial year 2020 – in each case authorised for issue by the Board of Management on 9 March 2021 – and issued an unqualified audit opinion, signed for the second year in succession by the auditor Petra Justenhoven as independent auditor (Wirtschaftsprüferin) and by Andreas Fell as independent auditor (Wirtschaftsprüfer) and auditor responsible for the performance of the engagement. At its meeting held on 26 February 2021, the Audit Committee initially considered in detail the preliminary version of the Company and Group Financial Statements, the Combined Management Report (including the Combined Non-financial (Group) Statement), the Statement of Corporate Governance, the draft versions of the auditor’s reports and the Board of Management’s proposal for the appropriation of profit. Immediately after authorising their issue, the Board of Management submitted the Company and Group Financial Statements for the financial year 2020 and the Combined Management Report (including the Combined Non-financial (Group) Statement), the Statement of Corporate Governance and the proposal for the appropriation of profit to the Supervisory Board. The auditor’s long-form audit reports were also made available to the Supervisory Board in a prompt manner. At its meeting on 10 March 2021, the Audit Committee diligently examined and deliberated on these documents before they were considered in detail at the plenary session of the Supervisory Board on 11 March 2021. BMW GroupReport 2020 To Our Stakeholders Report of the Supervisory Board 22 At the two respective meetings, the Board of Management provided the Audit Com- mittee and the Supervisory Board with detailed explanations of the financial reports presented. The representatives of the external auditor present at the meetings reported on the main findings of their audit and answered additional questions put by members of the Audit Committee and the Supervisory Board. The focus of these meetings was on key audit matters as well as the related audit procedures, which were discussed at length by the Audit Committee and the Supervisory Board. The representatives of the external auditor confirmed that the risk management system established by the Board of Management is capable of identifying at an early stage any developments that might threaten the Company’s going concern status. They also confirmed that no material weaknesses in the internal control system and risk management system were identified with regard to the financial reporting process. Sim- ilarly, in the course of their audit work they did not identify any facts inconsistent with the contents of the Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) issued by the Board of Management and the Supervisory Board. by the members of the Supervisory Board. The “limited assurance” audit performed by PwC received an unqualified opinion, which was duly signed by Andreas Fell as inde pendent auditor (Wirtschaftsprüfer) and by Nicolette Behncke as independent auditor (Wirtschaftsprüferin). The Supervisory Board acknowledged and approved the combined Non-financial (Group) Statement drawn up by the Board of Management. Expression of appreciation by the Supervisory Board We would like to express our special thanks to the members of the Board of Man- agement and the entire workforce of the BMW Group worldwide for their remarkable achievements in the financial year 2020. Their outstanding degree of motivation, adapt- ability and strong team spirit made this result possible, despite the extremely difficult conditions. We are confident that the Board of Management and the employees of the BMW Group, with their courage and willingness to adapt, will ensure your company a leading position in the field of sustainable and digitalised mobility going forward. Based on a thorough examination conducted by the Audit Committee and the full Supervisory Board, we concurred with the results of the external audit. In accordance with the conclusion reached by the Audit Committee and the Supervisory Board after the examination, no objections were raised. The Group and Company Financial State- ments of Bayerische Motoren Werke Aktiengesellschaft for the financial year 2020 drawn by the Board of Management were subsequently approved at our meeting held on 11 March 2021. The Company Financial Statements for the year ended 31 Decem- ber 2020 have therefore been adopted. Munich, March 2021 On behalf of the Supervisory Board We also examined the proposal of the Board of Management to use the unappropri- ated profit to pay a dividend of € 1.90 per share of common stock and € 1.92 per share of non-voting preferred stock, in each case on shares entitled to receive a dividend. We considered the proposal appropriate and therefore gave it our approval. NORBERT REITHOFER Chairman of the Supervisory Board The Audit Committee and the Supervisory Board also considered at length the combined Non-financial (Group) Statement for the year ended 31 December 2020, which was drawn up by the Board of Management for the first time as part of the Integrated Group Report. The Board of Management provided an in-depth explana- tion of the statement during the relevant meetings. Representatives of the external auditor presented key findings of their audit and answered additional questions posed BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management 23 STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT This year we are launching our TECHNOLOGY OFFENSIVE with the NEW ALL-ELECTRIC BMW models iX and i4. Oliver Zipse Chairman of the Board of Management BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management DEAR SHAREHOLDERS, Climate change demands responses. Rethinking our mobility as a task for society as a whole is one way of responding – with considerable impact and an important sig- nalling effect. The BMW Group is a global, digitalised high-tech company for premium mobility. With this idea of ourselves, we are driving and shaping the transformation of our industry. To do so, we are relying on technological innovation in all relevant fields – sustainable drivetrains, autonomous driving and intelligent integration of hardware and software, as well as for the digitalised automotive production of the future, up to and including blockchain technology and artificial intelligence. Such profound upheavals like the sustainable mobility that we are combining step by step with the principles of a circular economy require cooperation on a much larger scale. The BMW Group is involved as a partner and visionary through cross-industry technology alliances and platforms. We firmly believe that technological innovation, in combination with responsible action, contributes to progress for companies and the economy, as well as benefiting the environment. We all share the same goal of a climate-neutral society. First integrated BMW Group Report. We are documenting our impact on the road to climate neutrality. With the transition to integrated reporting, we are documenting how we are managing the BMW Group systematically and in an integrated manner according to financial and sustainability targets. For you, dear shareholders, as well as for other stakeholders in this company, we want to verifiably show our progress. With this move, we are not just leading the way among our key competitors. The BMW Group has followed a broad stakeholder approach for years. We aim to set an example and are therefore comprehensively and systematically reducing our environmental footprint. Our aim is to achieve full trans- parency. We will naturally only be releasing the new Report online. 24 ENVIRONMENTAL PROGRESS through TECHNOLOGY – that is what the BMW Group stands for. BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management 25 Listen to what CEO OLIVER ZIPSE has to report about the financial year 2020. Robust and flexible, adaptable and innovative – your company during the Covid-19 pandemic. The rapid spread of SARS-CoV-2 around the globe struck while the BMW Group was in the midst of its multidimensional transformation. In hindsight, one thing is clear: in a difficult environment with unforeseeable developments, your company proved just how robust, flexible, adaptable and innovative it is. Our greatest strength was taking a realistic view of things, relying more than ever before on the flexibility of our people. Thanks to this, we were able to meet our adjusted targets, which we announced early in the pandemic. At the same time, the Board of Management made far-reaching decisions and significantly stepped up the pace of transformation at the BMW Group. Global market share increased during the pandemic. Our vehicles have given many people a sense of security during the pandemic. In fact, cars were more popular than ever. Our customers bought over 2.3 million BMW, MINI and Rolls-Royce vehicles – a decrease of only 8.4 percent from our record-breaking 2019. Nonetheless, the BMW Group was able to increase its global market share in 2020. Additionally, BMW Motorrad posted the second-best sales figures in its history and BMW M GmbH had its most successful year ever. EU CO₂ limits for 2020 significantly overfulfilled. Despite the coronavirus pandemic, we delivered about a third more electrified BMW and MINI vehicles to customers than the previous year. Our plug-in hybrids were highly sought-after, as were our new fully electric models, the BMW iX3 * and MINI Cooper SE *. Because we started our preparations early, we were able to significantly overfulfil our assigned CO₂ limit by about 5 g / km. This was never in any doubt for us. Our EU fleet emissions are currently at 99 g / km and we will also meet the 2021 requirements. Accepting things as they are and making the best of them. During lockdown, we had to shut down production across our global network for the first time in BMW history. Shortly afterwards, we ramped up again – in a phased, yet extremely timely manner. This enabled us to respond to different rates of development in the markets quite precisely. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management 26 Our associates implemented the new requirements with commitment and discipline – and continue to do so. Every single vehicle launch went ahead as planned. Our supply chain stayed up and running at all times and mastered the stress test of the coronavirus year. We kept in touch with our customers – personally and digitally. Thanks to our new Mobile Sales Office, we are also offering contactless consultation and sales in more than 60 markets. Thank you to all our customers; praise for our 120,726 associates. Personally, and on behalf of the Board of Management team, I would like to thank all our customers for placing their trust in us. I would also explicitly like to thank our retail organisation and suppliers and extend an especially warm thank you to all our associates. 2020 was an extremely challenging year, full of emotion, hope and setbacks, but the BMW team spirit prevailed. The Company and employee representatives found solutions together – just as Herbert Quandt would have wanted. Phase I of our transformation – the e-mobility pioneer. At major tipping points, BMW has often ushered in change with bold decisions. During the global economic and financial crisis of 2008 / 2009, your company paved the way for electric mobility. The ultra-sustainable BMW i3 * was ahead of its time – and is still performing well in the marketplace to this day. Phase II of our transformation – strategic focus on electrification, digitalisation and developing expertise. We are currently leveraging the full potential of global differences in demand with our wide range of products and drivetrains. The popular BMW X3 will be joined by the high-volume BMW 5 Series, X1 and 7 Series models, each with a choice of four drivetrain technologies. Our plants are capable of building different drivetrains on the same production line. By the end of 2022, each of our German vehicle plants will be producing at least one fully electric vehicle. This is what flexibility looks like at BMW! We are enabling our team by developing expertise and reallocating competences. We plan to take everyone along with us. This year alone, we will be training 75,000 partici- pants in future areas of activity and new fields of expertise like robotics, data analytics, agile software development, AI, autonomous driving and, of course, e-mobility. * See Fuel Consumption and CO2 Emissions Information. Electrifying the BMW Group. We are also stepping up electric mobility to keep pace with growing demand. Our roadmap is ambitious: Your company aims to have delivered more than a million ve- hicles with battery-electric or plug-in hybrid drive trains to customers by the end of this year. We will have 25 electrified models on the roads by 2023 – targeting our large high-volume models, in particular. By 2025, electrified vehicles will comprise at least a quarter of our sales volume. We also see potential in fuel cells and are supporting the creation of hydrogen infrastructure in Germany. A small series of the BMW i Hydrogen NEXT is planned from 2022. BMW iX and i4 will revolutionise the market in 2021. Many customers are eagerly awaiting the new fully electric BMW iX * and i4 models. Both vehicles have a strong emotional appeal straight from the heart of the BMW brand. In the iX we have perfectly integrated hardware and software in the form of shy tech. Just as our customers would expect from us: in a simple, intuitive and precise manner. We want to excite people with innovations and at the same time inspire them. The new BMW iDrive transforms the iX *, just like every future BMW model, into a digital powerhouse. Phase III of our transformation – what will define a BMW in the year 2030? We aim to deliver at least seven million electrified vehicles to customers by 2030. To coincide with the next surge in e-mobility, we will be launching our new cluster archi- tecture, which is uncompromisingly centred on fully electric drivetrains, in the middle of the decade, starting at our new plant in Hungary. We believe the next dimension of digital connectivity is closely tied to this: in the vehicle, in production and throughout our company processes. Sustainability is the common thread. Achieving consistent, sustainable development will also give us a competitive edge. In 2012, we set ourselves ten sustainability goals up to 2020. Today, we are able to say: mission accomplished. Let me give you three examples: 1. We halved the CO₂ emissions of our European new vehicle fleet between 1995 and 2020. 2. Our plants worldwide exclusively source green electricity. As of 2021, they will even produce completely CO₂-neutral on balance. 3. The percentage of women in management functions at the BMW Group is above our target range. BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management 27 We don’t just do sustainability at BMW: We are making BMW sustainable. We now find ourselves on the next stage of the journey – pursuing a verifiable and consistent path towards climate neutrality by 2050. In July 2020, we adopted our integrated sustainability strategy, with concrete science-based targets for the first stage up to 2030. How are we different from other companies? The answer to that is simple: we are substantially reducing our carbon footprint along the entire value chain. The aim is for life cycle CO₂ emissions per vehicle to be lowered by at least a third. This will be achieved through innovation, not offsets. In this way, we can drastically reduce the carbon footprint compared to 2019 per vehicle by 2030: — In production by 80 percent. — During the use phase by more than 40 percent. — In the supply chain by at least 20 percent. Without countermeasures, growth in e-mobility would, in fact, increase supply chain CO₂ emissions by a third. Instead, we are reversing this trend and lowering emissions. Our aim is to create the most sustainable supply chain in our industry. We have already agreed with our suppliers that they will only use green power to produce battery cells. This measure alone adds up to about ten million tonnes less CO₂ over the next ten years. Climate-neutral business model spanning the entire value chain by 2050. We are already looking ahead into the future and intend to close the material cycle further – for instance, by increasing the percentage of secondary material in our vehicles. This lowers CO₂ emissions significantly compared to using primary material. We will be sharing how we plan to drive towards a circular economy at the IAA MOBILITY 2021. Our clear claim is that the GREENEST ELECTRIC VEHICLE comes FROM BMW. We are reducing CO₂ emissions per vehicle over the entire value chain. This is what sets the BMW Group apart. BMW GroupReport 2020 To Our Stakeholders Statement of the Chairman of the Board of Management 28 Dear Shareholders, The coronavirus pandemic has shown very clearly how important cars are to people. Demand should continue to increase overall. We aim to get sales back towards their pre-pandemic levels by the end of the year. We always take a long-term perspective. All our decisions are geared towards adding value, profitability and growth in close combination with sustainability, climate protection and secure jobs. On this basis, your company will remain a safe and attractive investment, focused on added value creation. Our entrepreneurial independence is a valuable commodity for us. From this posi- tion, we can create a new mobility for our customers. We will be investing more than € 30 billion in research and development – and the future of your company – by 2025. That alone shows how fully confident we are. Join us in embarking on this promising decade! OLIVER ZIPSE Chairman of the Board of Management BMW GroupReport 2020 To Our Stakeholders Dialogue with Stakeholders DIALOGUE WITH STAKEHOLDERS STAKEHOLDER ENGAGEMENT The BMW Group is an enterprise that operates on a global scale within a complex environment subject to crucial interdependencies. Business activities have an external impact and can affect the interests of many individual stakeholders as well as various categories of stakeholders. Conversely, developments occurring across society as a whole can influence the Group’s business activities, both directly and indirectly. Against this back- drop, the BMW Group maintains a regular dialogue with its stakeholders in all key markets on a variety of topics. The aim at all times is to achieve a better understand- ing of the positions of stakeholders and in turn provide them with greater insight into the BMW Group’s activi- ties. In pursuing this aim, the BMW Group does not shy away from critical topics and debates, but endeavours to find solutions via a constructive dialogue with stakehold- ers in the best interests of all concerned. In its interaction with stakeholders, the BMW Group uses its own dialogue formats as well as participating constructively in public debates. For example, the Group has been represented at UN climate conferences for many years. The basis for the BMW Group’s engagement with stakeholders is set out in its Stakeholder Engagement Policy. The document defines dialogue objectives, sets out the criteria for identifying and prioritising stakeholders, and specifies suitable dialogue formats as well as forms of communication. BMW GROUP DIALOGUES BMW Group Dialogues are among the main formats for interacting with stakeholders and have been held regu- larly since 2011. Above all, they provide an opportunity to sound out current and impending corporate strategic decisions compared with stakeholder expectations. Major topics covered in recent years have included electric mo- bility, the Group’s energy strategy, corporate citizenship, urban mobility, and environmental and social standards in the supply chain. Generally, BMW Group Dialogues are held annually in the BMW Group’s key sales regions of North America, Europe and Asia. Stakeholder feedback is documented and incorporated in the Group’s strategic considerations alongside other key factors. 29 PARTICIPATION IN PUBLIC POLICY DEVELOPMENT AND WORK IN ASSOCIATIONS The BMW Group maintains an active, open and transparent dialogue with policy makers, union repre- sentatives, associations and non-governmental organi- sations (NGOs). The aim is to play a constructive and transparent role in helping shape the general political framework regarding the company’s business activities. In this context, the BMW Group offers its expertise to promote fair competition for all those involved and find viable solutions. The BMW Group has political offices in a number of major cities, including Berlin, Brussels, Washington DC and Beijing, giving it a worldwide presence for express- ing its opinions on environmental, financial and social policy issues. The BMW Group always adopts a clear position, which it communicates in a transparent manner to external parties, regardless of the target audience it is addressing. Apart from its own activities in terms of public pol- icy development, the BMW Group is also a member of numerous associations in various countries. Membership is voluntary in the majority of cases, although there are some situations in which it is necessary to join associa- tions in order to comply with legal requirements. The BMW Group puts forward its own standpoints with a view to helping shape association policies. How- ever, this does not mean that the Group’s opinions always fully coincide with those of the associations. If there are any major differences, the Group considers the best options available for best dealing with the situation. BMW Group Cooperation Policy for Trade, Industry & Car Manufacturer Associations BMW GroupReport 2020 To Our Stakeholders Dialogue with Stakeholders 30 At the beginning of 2021, the BMW Group assumed the presidency of the European Automobile Manufactur- ers’ Association (ACEA). The Association collaborates with a wide range of institutional, non-governmental research and civil society organisations as well as with a number of industry associations. The year 2021 is seen as a crucial point for the automotive industry within the European Union in terms of transitioning to sustainable mobility. The current focus of the ACEA agenda is there- fore on topics such as climate protection, emissions, con- nected and automated driving, sustainability, research and innovation, economy and safety. In the interest of transparency, the BMW Group al- ways discloses the most important association member- ships on its website BMW Group Memberships. Furthermore, all topics that are discussed at EU level are publicly available in the EU Transparency Register. FINANCIAL MARKET PRESENCE WITH SUSTAINABILITY CREDENTIALS Regular in-depth dialogue with capital market partici- pants has always been a high priority for the BMW Group. Within a short space of time, sustainability has become a key driver for the financial market. Investors and analysts are increasingly considering environmental, social and governance (ESG) aspects in their investment recommen- dations and decision-making processes. For many years now, its top rankings in prestigious capital market sustainability indexes have borne out the BMW Group’s leading role among automobile manu- facturers. In 2020, for instance, the BMW Group was ranked first in the automotive category of the Dow Jones Sustainability Indices World and Europe. The Group also attaches particular importance to remaining in direct contact with investors and analysts. These dialogues are currently focused on the BMW Group’s sustainability strategy, the related progress updates and the ambi- tious targets the Group has set itself to reduce carbon emissions across the entire value chain. These topics are discussed in face-to-face meetings and conversations as well as at (sometimes virtual) roadshows and conferences held at key international financial centres. Against the backdrop of the Paris Climate Agreement, policymakers in Europe are also increasingly adopting a holistic approach to dealing with climate protection and sustainability issues. For example, the EU Action Plan for Sustainable Finance aims to redirect capital flows towards sustainable economic activities. Financial risks arising from factors such as climate change, resource scarcity and environmental degradation are set to be given greater prominence, and new approaches are being developed to manage these risks. There are also calls to promote greater transparency and long-termism regarding financial and economic activity. In June 2020, as a key aspect of the EU Action Plan, the EU Parliament adopted a regulation to introduce a uniform classification system (taxonomy) for environ- mentally sustainable economic activities within the EU, with a view to achieving a sustainable allocation of cap- ital. The Taxonomy Regulation also extends the relevant reporting requirements to companies covered by the EU CSR Directive. From the 2021 reporting year onwards, companies affected are required to disclose information on revenues, capital expenditure and operating expenses relating to economic activities that qualify as environ- mentally sustainable, based on the stipulated taxonomy. The BMW Group attaches great importance to the EU Taxonomy Directive and is currently preparing for the new requirements in a Group-wide project. Sustainability is also an important factor for the BMW Group when it comes to investing pension fund assets. At the end of 2019, the Group took a pivotal decision to apply sustainability criteria to investments held by its German pension fund. The current focus is on measuring the carbon footprint of significant parts of these assets on the one hand and the risks attached to their future performance on the other. Concurrently, numerous benchmarks for investing in liquid assets have been replaced by ESG-optimised indices. Regarding the non-liquid portion of pension assets, a fixed amount has been reserved for upcoming investments that are intended to have a measurable, positive impact on the environment or society in gen- eral that are not based on yield considerations alone (impact investments). In addition to climate protection, the investments made to date are largely based on the Sustainable Development Goals (SDGs) set out by the UN such as health, well-being, affordable clean energy, and sustainable consumption and production. BMW GroupReport 2020 To Our Stakeholders Dialogue with Stakeholders 31 KEY TOPICS IN 2020 Key topics raised by the BMW Group with stakeholders included: The BMW Group’s interaction with stakeholders in- cludes topics brought to its attention by stakeholders as well as those in which it proactively engages in dialogue. — The Group’s new corporate strategy objectives — Environmental and social standards in the supply chain Key issues raised by BMW Group stakeholders in 2020 included: — Carbon emissions in the supply chain — Climate protection, particularly carbon emissions — Support for electric mobility and the comprehensive — Human rights in the supply chain, particularly re- garding the procurement of raw materials for electric mobility applications — Illegal deforestation — Lobbying in associations expansion of charging infrastructure — Political control over emissions limits without dis- criminating against individual drivetrain technolo- gies and vehicle concepts — Continued development of the regulatory framework for automated driving and digital networks — Sustainable finance — Support for new efficiency-enhancing technologies — Realistic relationship between emissions targets and emission measurement methods — Consistency between supply-side and demand-side decarbonisation policies — Ensuring a sufficient supply of critical raw materials — Trade policy and free trade agreements BMW GroupReport 2020 To Our Stakeholders Dialogue with Stakeholders 32 THE NEXT STEPS: STAKEHOLDER GROUPS AND FORMS OF DIALOGUE Dialogue, conferences and technology workshops with investors and analysts Capital market Dialogue in the context of industry initiatives, joint events, training courses, presentations, supplier risk assessments Participation of company experts in committees and working groups, memberships of initiatives and associations Available to answer questions from policymakers and provide information to political decision makers on relevant topics from the company’s perspective Visiting universities and colleges, talks, discussions, dialogue events with students Dialogue within the context of press trips, press releases, information events on new products, test drives, trade fairs Dialogue with sales organisations and coordinating units of importers Discussions with local residents, plant tours, press engagements Face-to-face meetings / dialogue, responding to enquiries Dialogue with employees and managers, employee surveys, idea management, internal media Surveys (including a corporate reputation study), social media, trade fairs, mass media Suppliers Networks and associations Political decision makers Research Mass media Business partners Local stakeholders Civil society and NGOs Employees Customers The BMW Group intends to continue interacting with its stakeholders throughout 2021. Apart from consider- ing ways to develop and expand its own existing formats, it will also continue to participate constructively in public formats during the coming year. Further plans include broadening the scope of in- ternal dialogues with employees from 2021 onwards, building on the success of this format at the BMW Group Dialogues in 2020. The aim is to make employees aware of the expectations of external stakeholders on the one hand, while at the same time enabling employees to participate in ongoing discussions and developments on the other. The BMW Group will also continue to engage in con- structive dialogue with investors and analysts focused on Socially Responsible Investments (SRI). In addition to the daily discussions held on this subject, the BMW Group’s participation in SRI roadshows and conferences in global financial centres is again scheduled for 2021. The extent to which the coronavirus situation will continue to impact direct interaction with stakeholders in 2021 remains to be seen. However, the BMW Group has fared well with its digital formats so far and has developed a range of options for maintaining dialogue with stakeholders via alternative concepts and formats. BMW Group in dialogue GRI 102-40, 102-43 BMW GroupReport 2020 To Our Stakeholders BMW Stock and Capital Markets in 2020 BMW STOCK AND CAPITAL MARKETS IN 2020 RATINGS REMAIN AT HIGH LEVEL The BMW Group continues to be the best-rated automobile manufacturer in Europe. The severe impact of the coronavirus pandemic in 2020 and the accompanying repercussions for the global economy resulted in a reassessment of ratings in some in- dustries, including the automotive sector. For some time now, the rating agencies have highlighted the major chal- lenges currently facing the entire automotive industry in general. In light of developments in 2020, the agencies took the opportunity to reassess the credit ratings of their entire portfolio of automobile manufacturers. The more rigorous assessment resulted in a significant number of negative outlooks and downgrades being announced in the course of recent months. In this context, Moody’s lowered its long-term rating for BMW AG from A1 to A2 in March 2020 and at the same time set the outlook to “under review for further downgrade”, before changing it to negative two months later in May. Also in March, the rating agency Standard & Poor’s (S&P) lowered its credit rating from A+ to A, while leaving the outlook at negative. Both agencies cite the negative trend in profitability and free cash flow as the reason for the downgrade by one rating level. Furthermore, the transformation of the automotive industry and a deterioration of the market environment in general are seen as major challenges. The negative outlook for the long-term ratings reflects the general uncertainty regarding future developments and the potentially adverse impact of the coronavirus pandemic. In light of the prevailing circumstances, the agencies see a potentially negative impact on automobile sales, profitability and free cash flow across the automo- tive sector. At the same time, however, the short-term ratings for BMW AG were confirmed by both Moody’s (P-1) and S&P (A-1) and therefore remain at a high level. The BMW Group is already benefiting from its rigorous working capital and capital expenditure man- agement. The Automotive segment’s free cash flow, for instance, exceeded market expectations not only in the fourth quarter 2020, but also for the financial year as a whole, with the EBIT margin again nearing the strategic target range of between 8 and 10 %. 33 With its above-average ratings overall, the BMW Group continues to enjoy good access to interna- tional capital markets and is also benefiting from highly attractive refinancing conditions. Company rating Moody’s Standard & Poor’s Non-current financial liabilities Current financial liabilities Outlook A2 P-1 A A-1 negative negative TOP RANKINGS IN SUSTAINABILITY RATINGS The BMW Group again achieved top rankings in prestigious sustainability ratings in 2020, underlining its strong position in this area. In 2020, for instance, the BMW Group was named sector leader in the Automobiles category of the Dow Jones Sustainability Indices World and Europe. It is also in the top grouping (Climate A List) of the CDP ratings list (formerly Carbon Disclosure Project) for the transparency of its carbon emissions reporting. Furthermore, the Group was again listed in the British FTSE4Good Index in 2020, is also listed by MSCI, Sustainalytics and ISS-Oekom and holds a leading position in its sector in each case. BMW GroupReport 2020 To Our Stakeholders BMW Stock and Capital Markets in 2020 34 DIVIDEND BELOW PREVIOUS YEAR’S LEVEL – PAYOUT RATIO REMAINS STABLE BMW AG STOCK The Board of Management and the Supervisory Board will propose to the Annual General Meeting that the unappropriated profit of BMW AG amounting to € 1,253 million (2019: € 1,646 million) be used to pay a dividend of € 1.90 per share of common stock (2019: € 2.50) and a dividend of € 1.92 for each share of preferred stock (2019: € 2.52). The payout ratio for 2020 therefore stands at 32.5 % (2019: 32.8 %). COMMON STOCK Number of shares in 1,000 Stock exchange price in € 1 Year-end closing price High Low PREFERRED STOCK Number of shares in 1,000 Stock exchange price in € 1 Year-end closing price High Low KEY DATA PER SHARE IN € Dividend Common stock Preferred stock Earnings per share of common stock 3 Earnings per share of preferred stock 4 Free cash flow Automotive segment Equity 2020 2019 2018 2017 2016 601,995 601,995 601,995 601,995 601,995 72.23 76.68 37.66 73.14 77.75 58.70 70.70 96.26 69.86 86.83 90.83 77.71 88.75 92.25 65.10 57,689 56,867 56,127 55,605 55,114 55.20 57.60 32.50 1.902 1.922 5.73 5.75 5.15 55.05 67.85 47.54 2.50 2.50 7.47 7.49 3.90 93.26 90.92 62.10 85.50 60.70 3.50 3.52 10.605 10.625 4.12 88.265 74.64 78.89 67.29 4.00 4.02 13.07 13.09 6.78 82.95 72.70 74.15 56.53 3.50 3.52 10.45 10.47 17.45 72.08 1 Xetra closing prices. 2 Proposed by management. 3 Weighted average number of shares for the year. 4 Stock weighted according to dividend entitlements. 5 The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, Note 6 to the Group Financial Statements). BMW GroupReport 2020 Combined Management Report 35 COMBINED MANAGEMENT REPORT 36 36 37 41 56 58 62 69 73 76 80 84 87 91 95 99 100 105 109 113 116 119 General Information and Group Profile Core Values and Guiding Principles Organisation and Business Model Strategy, Goals and Management System How the BMW Group creates value Compliance and Human Rights Innovation and Customer Orientation Products and Services Design and Product Safety Carbon Emissions and Pollutants Electric Mobility Mobility Patterns Production, Purchasing and Supplier Network Production Network Resource Consumption and Resource Efficiency Renewable Energy Purchasing and Supplier Network Employees and Society Long-term Employee Development and Employer Attractiveness Health and Performance Employee Diversity Corporate Citizenship 122 122 126 127 142 142 148 150 153 154 159 159 164 179 180 Report on Economic Position General and Sector -specific Environment Overall Assessment by Management of the Financial Year Comparison of Forecasts with Actual Outcomes Review of Operations Automotive Segment Motorcycles Segment Financial Services Segment Other Entities Segment / Eliminations Comments on Financial Statements of BMW AG Report on Outlook, Risks and Opportunities Outlook Risks and Opportunities Internal Control System Relevant for Accounting and Financial Reporting Processes Disclosures Relevant for Takeovers and Explanatory Comments BMW GroupReport 2020 Combined Management Report General Information and Group Profile GENERAL INFORMATION AND GROUP PROFILE CORE VALUES AND GUIDING PRINCIPLES LONG-TERM THINKING FORMS THE BASIS FOR OUR ECONOMIC SUCCESS. Long-term thinking and responsible action are an integral part of the BMW Group’s corporate identity and continue to form the basis for our economic success. We strive constantly to meet the high expectations our customers have in our products. Our business model is intrinsically linked with the principle of sustainability and we see the two factors as an integral unit. We aspire to be not only the most successful, but also the most sustainable premium provider of individual mobility and always focus on the needs of our customers. The BMW Group’s stance is unwavering: ecological and social sustainability, responsibility for our products and a clear commitment to conserving resources are at the heart of our corporate strategy. We think and manage our corporate affairs in a holistic manner. For instance, we do not limit our understanding of environmental sus- tainability to the emissions generated by our vehicles, but rather take the entire value chain into account – whether along the supply chain, in our production processes, dur- ing the use phase or at the end-of-life recycling stage. We have firmly embedded the principle of sustainability in every aspect of our business. Our primary aim is to balance the interests of economy, ecology and society and thereby contribute to ecological and societal improve- ment. Global challenges such as growing urbanisation and the finite nature of natural resources have inspired and motivated us to develop a range of innovative products and services. Climate change is one of the greatest chal- lenges of our time and we are fully committed to the Paris Climate Agreement in order to mitigate its effects. As the BMW Group, we are making our contribution by focusing on developing and improving technologies and services that can effectively help bring about a via- ble reduction in the global carbon emissions caused by individual mobility. With this strategy we can create a clear competitive advantage by offering our customers emotional, trendsetting mobility solutions that are also made with sustainable principles in mind. 36 OUR ACTIONS AS A COMPANY HAVE A POSITIVE IMPACT ON THE ECONOMY AND SOCIETY. We are a company operating on a global scale. As such, we acknowledge our responsibility to contribute to economic prosperity in the countries where we are located. For this reason, we not only aspire to achieve sustained profitable growth for the Group, but also to make a specific contribution towards economic devel- opment and improvement in the quality of life at the locations where we operate. The growth of the BMW Group not only provides a reasonable return for investors, but also attractive salaries for its employees. We also make a positive contribution to society in general at the locations where we operate, firstly by paying the amounts due to public authorities (such as customs duties and taxes) and secondly in the form of social, cultural and corporate citizenship activi- ties. Corporate Citizenship. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 37 Operating on a global scale, the BMW Group employed a workforce of 120,726 people at the end of the year under report. In 2020, the BMW Group consolidated its position as one of the world’s most attractive employers. Its leading role in terms of sustainability also contributes to employee loyalty within the BMW Group. The BMW Group comprises BMW AG itself and all subsidiaries over which BMW AG has either direct or in- direct control. BMW AG is also responsible for managing the Group, which is sub-divided into the Automotive, Motorcycles and Financial Services operating segments. The Other Entities segment primarily comprises holding companies and Group financing companies. THE TRANSFORMATION OF MOBILITY AND THE ADVANCE OF DIGITALISATION ARE OPPORTUNITIES. ORGANISATION AND BUSINESS MODEL Mobility patterns worldwide, and hence the entire automotive industry, are currently undergoing profound change. We see this transformation as an opportunity to set new industry standards and innovate in the fields of electrification, connectivity and automated driving. Digitalisation provides us with an excellent oppor- tunity to take a fundamentally new approach to devel- oping products for the benefit of our customers. We not only react to customer wishes, but also anticipate them through a good understanding of their preferences. Moreover, digitalisation enables us to redesign processes throughout the entire organisation. WE ARE MOVING FORWARD IN OUR OWN INDEPENDENT WAY. As societal values as well as demographic and tech- nological conditions change, new demands on mobility solutions are constantly emerging. The ambition to fulfil those wishes and needs is the force that drives us for- ward. We are taking steps to ensure a viable future for our business by developing innovatively, sustainably and independently. General information on the BMW Group is provid- ed below. There have been no significant changes in the Group’s structure compared to the previous year. Bayerische Motoren Werke Aktiengesellschaft (BMW AG), based in Munich, Germany, is the parent company of the BMW Group. The starting point for the BMW Group’s corporate strategy is to act in a consistent manner on a custom- er-oriented and sustainable basis. Products, brands and services are currently being developed with a clear focus on innovative technologies such as low-emissions drivetrains, digitalisation, connectivity and autonomous driving. The BMW Group is one of the most successful manu- facturers of automobiles and motorcycles in the premium segment worldwide. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the best-known premium brands in the automotive industry. It also holds a strong market position in the premium segment of the motorcy- cle business. The Group sets itself clear goals in terms of sustainable, individual mobility, resource-efficient value creation, the continued development of its workforce potential and its contribution to society. Sustainability is an integral part of the Group’s business model and plays a vital role in ensuring its viability going forward. BMW GroupReport 2020 Combined Management Report General Information and Group Profile BMW GROUP LOCATIONS WORLDWIDE Headquarters Canada USA Mexico United Arab Emirates Brazil Argentina * South Africa New Zealand 38 42 Sales subsidiaries and Financial Services locations worldwide 31 Production and assembly plants 13 Countries with research and development locations Sales subsidiaries and Financial Services * Sales locations only. Russia India China South Korea Japan Hong Kong Thailand Malaysia Singapore Indonesia * Australia Production outside Europe BMW Group plant Araquari, Brazil BMW Group plant Chennai, India BMW Group plant Manaus, Brazil BMW Group plant Rayong, Thailand BMW Group plant Rosslyn, South Africa BMW Group plant San Luis Potosí, Mexico BMW Group plant Spartanburg, USA BMW Brilliance Automotive, China (joint venture – 3 plants) Partner plants outside Europe Partner plant, Chongqing, China Partner plant, Hosur, India Partner plant, Jakarta, Indonesia Partner plant, Cairo, Egypt Partner plant, Kulim, Malaysia Research and development network outside Europe BMW Group Designworks, Newbury Park, USA BMW Group Technology Office USA, Mountain View, USA BMW Group Engineering and Emission Test Center, Oxnard, USA BMW Group ConnectedDrive Lab China, Shanghai, China, and BMW Group Designworks Studio Shanghai, China BMW Group Technology Office, Shanghai, China BMW Group Engineering China, Beijing, China BMW Group Engineering Japan, Tokyo, Japan BMW Group Engineering USA, Woodcliff Lake, USA BMW Group IT Technology Office, Greenville, USA BMW Group IT Technology Office, Singapore BMW Group IT DevOps Hub, Rosslyn, South Africa BMW do Brasil, Araquari, Brazil BMW Group Technology Office Tel Aviv, Tel Aviv, Israel BMW Group R&D Center Seoul, Seoul, South Korea BMW GroupReport 2020 Combined Management Report General Information and Group Profile BMW GROUP LOCATIONS IN EUROPE Norway Germany The Netherlands UK Ireland Belgium / Luxembourg France Switzerland Italy Slovenia * Spain Portugal * * Sales locations only. Production in Europe BMW Group plant Berlin BMW Group plant Dingolfing BMW Group plant Eisenach BMW Group plant Landshut BMW Group plant Leipzig BMW Group plant Munich 39 Sweden Finland * Denmark Czech Republic Poland Austria Slovakia Hungary * Romania * Bulgaria * Greece Research and development network in Europe BMW Group Research and Innovation Centre (FIZ), Munich, Germany BMW Car IT, Munich, Germany BMW Group Autonomous Driving Campus, Unterschleißheim, Germany BMW Group Designworks, Munich, Germany BMW Group Lightweight Construction and Technology Center, Landshut, Germany BMW Group Diesel Competence Centre, Steyr, Austria Critical TechWorks S.A., Porto, Portugal BMW France, S. A. S., Montigny, France Rolls-Royce Motor Cars Ltd., Goodwood, UK BMW Group plant Regensburg BMW Group plant Wackersdorf BMW Group plant Steyr, Austria BMW Group plant Hams Hall, UK BMW Group plant Oxford, UK BMW Group plant Swindon, UK Rolls-Royce Manufacturing Plant, Goodwood, UK Partner plants in Europe Partner plant, Born, the Netherlands Partner plant, Graz, Austria Partner plant, Kaliningrad, Russia BMW GroupReport 2020 40 FINANCIAL SERVICES SEGMENT The BMW Group is a leading provider of financial services in the automotive sector. It offers these services in around 60 countries worldwide via companies and cooperation arrangements with local financial services providers and importers. The Financial Services seg- ment’s main business is credit financing and the leasing of BMW Group brand automobiles and motorcycles to retail customers. Customers can also choose from an attractive array of insurance and banking products. Operating under the brand name Alphabet, the BMW Group’s international multi-brand fleet business provides financing and comprehensive management ser- vices for corporate car fleets in more than 20 countries. These services also include helping customers to manage their fleets on a sustainable and climate-friendly basis. Financing dealership vehicle fleets serves to support the dealership organisation and rounds off the segment’s range of services. Products and Services The MINI brand promises driving pleasure in the premium small car segment and, apart from models pow- ered by efficient combustion engines, also offers plug- in hybrid and fully electric variants. Rolls-Royce is the ultimate marque in the ultra-luxury segment, boasting a tradition that stretches back over more than 100 years. Rolls-Royce Motor Cars specialises in bespoke customer specifications and offers the very highest level of quality and service. The global sales network of the BMW Group’s automo- bile business currently comprises more than 3,500 BMW, over 1,600 MINI and some 140 Rolls-Royce dealerships. MOTORCYCLES SEGMENT The Motorcycles business is also clearly focused on the premium segment. The model range currently comprises motorcycles in the Sport, Tour, Roadster, Heritage, Adventure and Urban Mobility categories. BMW Motor rad also offers a broad range of equipment options to enhance rider safety and comfort. The Mo- torcycles business sales network is organised similarly to that of the automobiles business. Currently, BMW motorcycles are sold by more than 1,200 dealerships and importers in over 90 countries. Combined Management Report General Information and Group Profile PRESENTATION OF SEGMENTS In order to provide a better insight into the Group as a whole, this report also contains separate presentations of the Automotive, Motorcycles and Financial Services operating segments. AUTOMOTIVE SEGMENT The BMW brand caters to a wide variety of customer requirements. Its model portfolio comprises an extensive range of automobiles, including the premium compact class, the premium mid-size luxury class and the ul- tra-luxury class. Apart from fully electric models such as the BMW iX3*, which was launched in 2020, it also includes state-of-the-art plug-in hybrids and conventional models powered by highly efficient combustion engines. Together with the highly successful models of the BMW X family and the high-performance BMW M brand, the BMW Group meets the diverse expectations and needs of its customers worldwide. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report General Information and Group Profile STRATEGY, GOALS AND MANAGEMENT SYSTEM STRATEGIC ORIENTATION OF THE BMW GROUP Individual mobility, as the BMW Group understands it, is inextricably linked with conserving the world’s nat- ural resources. The BMW Group bases its contribution to the sustainable development of our planet on scien- tifically derived criteria. With this principle in mind, it combines ecological and social aspects with securing its long-term future in all its activities. The BMW Group views the combination of driving pleasure and respon- sibility for acting sustainably as a clear factor for dif- ferentiation. The outcome is that customers experience outstanding innovative products made by a company focused on sustainability. However, that is merely the starting point for the BMW Group, which intends to integrate sustainability more strongly than ever in its corporate strategy. The strategy establishes the necessary conditions to fulfill both customer expectations and regulatory requirements regarding emissions in the Group’s various markets by offering a wide range of products. Its clear ambition is to ensure that all areas of the company think, manage and demonstrably act in a true spirit of sustainability. This way of thinking has resulted in the BMW Group reaching the logical strategic decision to move away from pursuing a separate sustainability strategy and present- ing a separate sustainable value report. Sustainability is 41 the basic pattern that shapes the BMW Group’s strategy. From beginning to end, activities and plans should com- prehensively be examined with regard to their economic, ecological and social impacts and the corresponding decisions taken based on an integrated approach. With effect from the financial year 2020, the Group is there- fore integrating its reporting. A Group Report of this nature covers a variety of key aspects and endeavours to highlight correlations in a transparent manner. The BMW Group is therefore consciously subjecting all of its activities to a comprehensive external audit, including its activities in the area of sustainability. THE STRATEGY ARROW – POINTING THE WAY TO THE FUTURE The BMW Group’s strategy comprises four key ele- ments, which are summarised in a strategy arrow that points towards the future. POSITION – WHAT DOES THE BMW GROUP STAND FOR? The BMW Group stands for first-class individual mobility and sustained responsibility. These factors pro- vide transparency and reliability for shareholders and investors as well as for partners in the supply chain and the production and sales system, but also for all other stakeholders, political decision makers, the media and the general public. The BMW Group considers itself as a pioneer and sets standards for the individual mobility of tomorrow. It combines joy and responsibility without compromise and, together with its partners, leads the industry in terms of environmental, social and integrity standards. The BMW Group is committed to complying with the Paris Climate Agreement – with a verifiable track record of continuous improvement. It is promoting the principles of circular economy, both in its corporate philosophy and in close collaboration with its partners – from the supply chain to production, the use phase and the recycling of its products. Position Direction Strategic approach Collaboration BMW GroupReport 2020 Combined Management Report General Information and Group Profile DIRECTION – WHAT IS THE BMW GROUP’S DRIVING FORCE? Its aspiration to manufacture products that will in- spire its customers – both today and in the future. That is the force that drives the BMW Group. At the same time, the Group strives to achieve a high level of profitability in order to safeguard its corporate independence and distinctively shape the mobility trends of the future. The integration of ecological and social aspects throughout its entire value chain ensures the continued viability of the BMW Group going forward. The Group is built on a firm foundation of strong brands and emotional products. In the face of increasing- ly fierce competition, the BMW Group continues to hone its brand profiles and express them, among other ways, in a unique, characteristic automotive design language. Design arouses emotions and emotion drives desire. At the BMW Group, outstanding design always follows function. The kidney-shaped grille of the new BMW iX, for example, takes on a new role as a smart surface that not only conceals new technologies, but has the ability to self-heal due to the use of innovative materials, so that slight scratches disappear by themselves. Innovation and Customer Orientation The products must deliver what their design prom- ises, i. e. sportiness, quality and emotionality, a fact that applies equally to all drivetrain technologies. The BMW Group is a leading supplier of electrified vehicles, the foundation for which was laid at an early stage by project i with the all-electric BMW i3 in 2013. Mean- while, the Group is in the middle of its second phase: In order to keep pace with growing market demand, it is expanding its offering of electric drivetrains across all segments. With its flexible platforms and the fifth gen- eration of in-house developed fully electric drive trains, the BMW Group can offer its customers worldwide a broad and mature range of products. For example, the all-electric MINI Cooper SE * and the BMW iX3 * were both launched in the course of 2020 and will be followed by the BMW i4 and the BMW iX * in 2021. In future, models such as the high-volume BMW 5 Se- ries and the X1 as well as the BMW 7 Series will be available with four different types of drivetrain – all-electric, plug-in hybrid, petrol and diesel. Moreover, the BMW Group is preparing for the third phase of its transformation with a new vehicle architecture starting in the mid-2020s. Over the next ten years, the Group intends to have more than seven million of its electrified vehicles on roads world- wide – at least two-thirds of them all-electric models. 42 With this aim in mind, the BMW Group is system- atically expanding its product range and progressively enhancing both its technologies and its vehicle archi- tectures, the latest of which are entirely centred on fully electric drivetrain systems. At the same time, the Group is taking another major step in terms of digitalised con- nectivity, not only within the vehicle itself, but also in its corporate processes. As part of its Performance Programme, the BMW Group is also working to continuously raise its level of efficiency in order to compensate for the high upfront expenditures required for the technologies that will shape the world of tomorrow. Profitability and free cash flow have a high priority within the BMW Group’s corporate management system. All the measures and initiatives it takes are therefore aimed at continually developing its strong economic base. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report General Information and Group Profile Moreover, to express the importance of its ability to perform in economic terms, the BMW Group has set it- self ambitious financial targets in the course of realigning its strategy. In future, the key performance indicators (KPIs) already used in the annual outlook, namely 1. Profit before financial result as a percentage of Auto- motive segment revenues (EBIT margin Automotive segment) and 2. Return on capital employed for the Automotive seg- ment (RoCE Automotive segment) will also be integrated as KPIs at the strategic level. The aim is for the Automotive segment’s EBIT margin to rise steadily again to between 8 % and 10 % and for the RoCE to reach a level of at least 40 % in the future. The two segment-related profitability indicators will be supplemented by the KPI 3. Group profit before tax as a percentage of Group revenues (BMW Group EBT margin). With this strategy, the BMW Group intends to gen- erate a Group EBT margin in excess of 10 %. In terms of KPIs, the equivalent to Group EBT margin for corporate management purposes is Group profit before tax (EBT). Outlook Management System and 43 With regard to free cash flow, the BMW Group focus- es particularly on capital expenditure and the systematic management of working capital. STRATEGIC APPROACH – WHERE IS THE BMW GROUP HEADING? Even faster digitalised processes and lean struc- tures are key prerequisites for consistently leveraging efficiencies. During the coronavirus pandemic year 2020, for example, advances in digitalisation enabled the BMW Group to maintain direct contact with its cus- tomers, despite lockdowns worldwide. Digitalisation is helping to shorten the process of developing new vehicle models by up to one-third. When the BMW Group transi- tions to the more advanced smart vehicle architectures in 2021, the conventional drivetrain variants will be largely phased out to make way for electrified drivetrains such as mild hybrid, plug-in hybrid and fully electric systems. These results will already begin to take effect from 2022. Moreover, as one of its efficiency initiatives, the Group regularly assesses how complexity can be rea- sonably reduced. Complexity arises due to increasingly strict and globally heterogeneous regulatory require- ments. The Group-wide Performance Programme also includes making the most of synergies and efficiencies in indirect purchasing as well as in terms of materials and production costs. And it goes without saying that the BMW Group is selectively bolstering its performance with attractive new models – especially in segments gen- erating the highest returns. The BMW Group places the strategic emphasis on its customers and their varying requirements worldwide. In the BMW Group, trendsetting technologies, emotional products and individualised customer service merge to create a unique overall experience for customers. Its strategy is therefore of a dynamic nature. On the one hand, the Group’s market environment is charac- terised by stable trends. This includes people’s need for individual mobility, which the BMW Group is convinced will remain strong and grow further in the years to come. On the other hand, however, it needs to be able to re- spond to uncertain developments both flexibly and with a sense of proportion. These developments can be of a (geo)political nature, but also come in the form of fully unexpected events such as the coronavirus pandemic. In 2020, the Board of Management realigned the core elements of the BMW Group’s strategy and focused them on the key technology areas that are expected to shape the future. Innovative technologies are the key to the future of mobility going forward. By 2025, the BMW Group intends to invest more than € 30 billion in research and development to reinforce its role as a leader of innovation. The Group’s plans are also an expression of confidence in terms of the way it sees business de- veloping going forward. Its ability to integrate a broad variety of technologies in an overall system is of crucial importance. Companies that succeed in mastering and combining both hardware and software in equal measure are those which will shape the future of the automobile in the long term. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 44 HOW DOES THE BMW GROUP ENSURE COOPERATION? SUSTAINABILITY PLACED AT CORE OF CORPORATE STRATEGY To achieve its strategic goals, the entire team of some 121,000 employees worldwide needs to work in a spirit of cooperation to implement the strategy, based on the principles of responsibility, appreciation, transparency, trust and openness. The BMW Group therefore works hand in glove with both internal and external partners with the twin aims of achieving maximum effectiveness and joint success. The Group needs to tackle the entrepreneurial, eco logical and social challenges in equal measure to accomplish these aims. Decisions need to be analysed with regard to their interactions and consequences in the overall context. Success is not something to be simply taken for granted, but has to be worked for every day anew. Everyone needs to work hard for “their” company and deliver maximum performance in order to reach the common goal. Success in corporate terms is always the joint success of all BMW Group employees together with their partners. For this reason, it is also a key aspiration of the BMW Group to be an attractive employer. Sustainability is intrinsic to the BMW Group’s stra- tegic orientation. At the end of July 2020, the Board of Management of BMW AG announced the first details of this strategy and presented targets to which the enter- prise will remain committed for the period up to 2030. In this endeavour, the BMW Group is building on a solid foundation. In recent years and decades, it has also re- peatedly set standards in sustainability that are acknowl- edged by external, independent bodies. In 2020, for example, the BMW Group took back industry leadership in the automotive sector in the Dow Jones Sustainability Indices World and Europe. The BMW Group therefore occupies the top spot among automotive manufacturers Dialogue with Stakeholders. It is also in the top CDP grouping for its transparent disclosure of carbon emissions. The principle of continuous improvement has always been a key aspect of the BMW Group's strategy. The Group has therefore given a commitment to achieve climate neutrality across the entire value chain by no later than 2050. In view of the long-term nature of its targets and the fact that, from today’s perspective, the technological and economic route remains uncertain, the BMW Group sets its targets one decade at a time. In 2020, for example, the Group set itself specific goals for the year 2030 based on scientific information. New science-based targets have emerged from the initiative of the same name (SBTI). These targets are fully in line with the requirements of the Paris Climate Agreement and put the BMW Group on the path towards climate neutrality. Carbon emissions are to be reduced by at least one-third per vehicle over the entire life cycle, from the supply chain to production to the end-of-life phase. The BMW Group expects environmental and social stand- ards to be upheld by all participants in the supply chain, including those delivering critical raw materials. The BMW Group aims to ensure the most sustainable supply chain in the industry. BMW GroupReport 2020 NEW AND AMBITIOUS TARGET FRAMEWORK BY 2030 The corresponding key non-financial performance 45 The BMW Group is firmly convinced that the fight against climate change and the responsible use of re- sources will determine the future of our society – and thus also that of the BMW Group. Particularly as a premium manufacturer, the BMW Group aspires to lead the way in promoting sustainability and is therefore also taking responsibility with regard to this key topic. This also means facing up to the challenges of the future, but also making effective use of opportunities as they arise. With this in mind, the BMW Group focuses on the performance and diversity of its workforce, whereby the proportion of women in management positions at BMW Group is seen as a key performance indicator for the future. Moreover, the BMW Group is rigorously going one step further by setting itself new and ambitious sustain- ability targets for 2030. They are an inherent aspect of strategic management and include the upstream supply chain, the Group’s own manufacturing operations as well as the customers’ use phase. indicators are: 1. CO₂ emissions per vehicle produced 2. CO₂ emissions of the new vehicle fleet * 3. Proportion of electrified vehicles in total deliveries In future, the key non-financial performance indica- tors will be supplemented to include CO₂ emissions gen- erated in the supply chain. The corresponding strategic focus is firmly established in every area of the company. * EU including Norway and Iceland. Combined Management Report General Information and Group Profile The new target framework represents a systematic continuation of the ten strategic sustainability goals already announced in 2012, which have been rigorously pursued in the period from 2012 to 2020. These sustain- ability goals were divided into three main fields of action: 1. Products and services The increasing electrification of the BMW Group’s fleet and the systematic further development of combustion engines made it possible to remain within the fleet CO₂ limit set by the EU in the 2020 reporting period, taking all regulatory requirements and regulations into account. As a result, the Group also achieved the target it set itself in 2012 of halving the carbon emissions generated by its European new vehicle fleet in the period from 1995 to 2020. Carbon Emissions and Pollutants 2. Production and value creation Since 2020, the BMW Group has obtained all of its production-related, externally generated electricity from renewable sources, in line with the target set by the Group. Renewable Energy 3. Employees and society Women accounted for 19.5 % of the BMW Group’s to- tal workforce during the year under report (BMW AG: 15.9 %) and therefore above the target range of 15 % to 17 % set for 2020. At 17.8 %, the proportion of women in management positions at BMW Group (BMW AG: 16.2 %) was also within the target range at the end of 2020. The high proportion of women in junior management programmes also forms the basis for a further increase in the number of women in management positions over time. Employee Diversity BMW GroupReport 2020 Combined Management Report General Information and Group Profile 46 Strategic targets 2020 2020 TARGETS ACHIEVED – 53 % CO² EMISSIONS IN THE EUROPEAN NEW VEHICLE FLEET IN THE PERIOD FROM 1995 TO 2020 100 % ELECTRICITY PURCHASED FOR THE BMW GROUP’S PLANTS WORLDWIDE SINCE 2020 FROM RENEWABLE ENERGY SOURCES 17.8 % PROPORTION OF WOMEN IN MANAGEMENT POSITIONS IN THE BMW GROUP PRODUCTS AND SERVICES PRODUCTION, PURCHASING AND SUPPLIER NETWORK EMPLOYEES AND SOCIETY This is a simplified depiction. Detailed explanations of KPIs and its corresponding assurance level are provided in the relevant chapters of the report. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 47 CARBON TARGETS FOR THE VEHICLE’S USE PHASE By 2030, the carbon emissions generated by BMW Group vehicles are to be reduced by more than 40 % per kilometre driven. The BMW Group has been working successfully for many years to reduce the level of carbon emissions of its new vehicle fleet worldwide. As well as complying with its legal obligations, the Group has always remained true to its voluntary commitments. The early deployment of Efficient Dynamics technologies since 2007 and the ongoing electrification of its vehicle fleet form the dual basis for continued compliance with statutory carbon emissions and fuel consumption limits going forward. As a pioneer of electric mobility, the BMW Group is in the process of significantly expanding its range. By the end of 2021, it aims to have over one million ve- hicles powered by either all-electric or plug-in hybrid drivetrains on the road. BMW Group customers will then be able to choose from a range of five fully electric series-produced models. The BMW Group intends to have 25 electrified mod- els on the road by 2023. The plan is based on flexible vehicle architectures and production systems that enable a model to be manufactured as an all-electric version, as a plug-in hybrid or powered by a conventional internal combustion engine. This approach gives the BMW Group the flexibility to take account of changes in market de- mand as well as differences in regulatory requirements and infrastructure in the various markets in which it operates. The BMW Group forecasts that demand for its electrified vehicles is set to double by 2021 compared to 2019. According to the BMW Group’s forecasts, by 2021 the sale of electrified vehicles is expected to double compared to 2019 figures. By 2025, the proportion of electrified cars in total Group deliveries is expected to rise to at least 25 %. However, Group decarbonisation targets are far more ambitious. By 2030, it aims to reduce carbon emissions per kilometre driven during a given vehicle’s use phase by more than 40 % compared to 2019 (Scope 3 downstream). Carbon Emissions and Pollutants The target is within the range defined by the SBTI’s calcu- lations to limit global warming to between 1.5 and 1.75 degrees Celsius. CARBON EMISSIONS IN PRODUCTION AND AT BUSINESS LOCATIONS BY 80 % The BMW Group has a direct influence on the carbon emissions generated at its own plants and locations and has therefore been a leader in terms of resource efficiency in this field for many years. Its underlying aspiration is even more ambitious than the international pursuing efforts of limiting global warming to 1.5 degrees Celsius. Despite having already reduced the level of carbon emissions per vehicle produced by more than 70 % since 2006, the BMW Group intends to additionally reduce carbon emissions per vehicle produced, which are generated directly by its own combustion process- es (Scope 1) and indirectly by external energy sources (Scope 2), by a further 80 % by 2030 (base year 2019). Accordingly, by 2030 carbon emissions are expected to have dropped by over 90 % compared with 2006 levels. Resource Consumption and Resource Efficiency Alongside the purchase of electricity, 100 % of which has been obtained from green, renewable sources * since 2020, Renewable Energy the BMW Group will continue to systematically invest in optimising its energy efficiency and also intends to exploit the opportunities offered by digitalisation in the process. Even today, the Group’s production processes are already highly efficient – for example, by reducing the volume of rejects in car body construction to a minimum and by planning the ongo- ing maintenance of its machinery on a predictive basis. The BMW Group will also examine the potential for the broader deployment of renewable energy at its various locations worldwide. The use of green hydrogen to gen- erate power can also play a key role. * Electricity generated from in-house renewable power plants, direct supply contracts for green electricity and certified guarantees of origin. BMW GroupReport 2020 48 As a concrete example of the measures taken, the Group has already entered into contractual agreements with its cell manufacturers that only green electricity will be used to produce the fifth generation of battery cells, a move that should lead to a total saving of around ten mil- lion tonnes of carbon dioxide over the next ten years. Moreover, the BMW Group is currently in the process of creating the organisational conditions that enable it to reliably record and document the size of the carbon footprint generated via its supply chain. This, in turn, is the key prerequisite for taking subsequent measures to reduce and effectively manage it, fully in line with the BMW Group’s declared strategy of continuous improve- ment. Purchasing and Supplier Network Task Force on Climate-related Financial Disclosures (TCFD) In its reporting procedures, the BMW Group also takes the rec- ommendations of the Task Force on Climate-related Financial Disclosures (TCFD) into account in order to report transparent- ly on climate risks and opportunities for operational and finan- cial reporting purposes. Firstly, it reports on this topic in detail in its BMW Group Report and secondly in the CDP questionnaire, which has incorporated the TCFD recommendations since 2018. The BMW Group’s 2020 CDP questionnaire is available on the TCFD-Index in the ap- pendix provides a compact overview of the key statements con- tained in the four TCFD core elements as well as their location in the BMW Group Report and the CDP questionnaire. BMW Group Website. The TCFD Index Combined Management Report General Information and Group Profile CO2 IN THE SUPPLY CHAIN: TREND REVERSAL AND SIGNIFICANT REDUCTION In view of the increasing number of electric vehicles on roads worldwide, far greater attention will also have to be paid to upstream value creation when it comes to reducing carbon emissions going forward – particularly in light of the energy-intensive production of high-volt- age batteries. Due to the greater proportion of electrified vehicles, carbon emissions generated per vehicle in the BMW Group’s supply chain are set to rise by more than one-third by 2030 if no countermeasures are taken. At the same time, as the volume of carbon emissions gener- ated during the use phase decreases, the total percentage of emissions caused by the supply chain and attributable to the Group will increase. This situation requires the BMW Group to set its own strategic targets. The Group not only aims to halt the rise in the level of carbon generated by the supply chain that would be expected without taking countermeasures (Scope 3 up- stream), it also intends to reduce emissions per vehicle by at least 20 % * by 2030 (base year 2019). In its efforts to achieve this aim, among other measures the BMW Group is establishing the carbon footprint of the supply chain as a decision-making criterion when awarding contracts. With this end in mind, the Group took the step of initiat- ing a dialogue with its most important suppliers in terms of their carbon footprint during the period under report. The BMW Group is playing an exemplary role in working with well-documented and measurable carbon emission targets for its supply chain. * Value rounded for simplification purposes. The target percentage validated in conjunction with SBTI is 22 %. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 49 RESPONSIBLE USE OF RESOURCES – ENTERING THE CIRCULAR ECONOMY Not only decarbonisation but also the responsible use of resources plays a key part in the BMW Group’s strategy. In practical terms, this means primarily avoiding waste or reducing it to an absolute minimum. However, as resources are scarce and many raw materials are only available in limited quantities, the reuse of materials and raw materials in the form of secondary materials is becoming increasingly key for manufacturing processes going forward. For example, the growing popularity of electric mo- bility worldwide cannot be covered by primary materials alone in the long term. Furthermore, there is a strong synergy between the conservation of primary natural resources and carbon dioxide emissions. Therefore, from a sustainability perspective, the underlying flows of resources require some rethinking. The BMW Group aims to obtain high-quality secondary materials through promoting a greater degree of transparency in the re- cycling chain and simultaneously tracing the reuse of (secondary) raw materials within the cycle. The Group has the clear objective of promoting the cir- cular economy principle by using raw materials even more efficiently in order to protect nature’s finite resources. Even today, vehicles are already required to be 95 % recyclable. However, the proportion of secondary raw materials used to manufacture new vehicles is still com- paratively low. In view of this key point, the BMW Group plans to considerably increase this proportion in its vehicles by 2030 – and is already exploring some very far-reaching scenarios. The use of secondary materials again significantly reduces carbon emissions in compari- son to primary materials – by as much as 80 % in the case of aluminium, for example. Keeping the extraction of raw materials to a minimum is an ideal way of protecting ex- isting resources. In the case of critical raw materials, for example, any political conflicts in the producing coun- tries could also give rise to risks for the BMW Group’s procurement activities, which can be mitigated through the use of secondary products. Particularly in view of the high-voltage batteries needed to power electrified vehicles, which can entail the use of critical raw materials, the circular economy has a decisive role to play. In close collaboration with the German recycling specialist Duesenfeld, the BMW Group has developed a process that can achieve a recycling rate of up to 96 % – including the graphite and electrolytes these devices contain. The BMW Group already offers all customers who own a vehicle equipped with a high-volt- age battery to take the devices back free of charge. The offer also applies to regions where it is not legally obliged to do so. In order to monitor and verify flows of goods on a global basis, the BMW Group is also using digital tools in pilot processes, including blockchain technology. The PartChain project, for example, enables the Group to collect supply chain data using a method that is both verifiable and tamper-proof at all times. In the long term, this technology could enable critical raw materials in par- ticular to be fully traceable from the mine to the smelter. Resource Consumption and Resource Efficiency SECURING LONG-TERM SUCCESS In order to create value for the BMW Group, the environment and society in general, sustainability is integrated throughout the entire value chain and all its underlying processes. And the evidence of how this Group strategy is being implemented underlines its tan- gible impact. It sets out clear guidelines and points the way forward in terms of how the BMW Group intends to shape the individual premium mobility of tomorrow. The BMW Group will move forward in its own independent way and continue the long-term process of developing on a sustainable and profitable basis. The BMW Group’s strategic goals up to the years 2025 and 2030 respectively are summarised in the presenta- tion below: BMW GroupReport 2020 Combined Management Report General Information and Group Profile 50 > 10 % EBT MARGIN GROUP 8 -10 % EBIT MARGIN AUTOMOTIVE SEGMENT ≥ 40 % RETURN ON CAPITAL EMPLOYED AUTOMOTIVE SEGMENT Strategic targets 2025 ≥ 25 % MINIMUM PROPORTION OF ELEC- TRIFIED AUTOMOBILES TO TOTAL DELIVERIES 22 % PROPORTION OF WOMEN IN MANAGEMENT POSITIONS IN THE BMW GROUP 2030 80 % REDUCTION OF CO² EMISSIONS PER VEHICLE IN PRODUCTION (BASE YEAR 2019) > 40 % REDUCTION OF CO² EMISSIONS IN VEHICLE USE PHASE PER KILOMETRE DRIVEN (BASE YEAR 2019) ≥ 20 % REDUCTION OF CO² EMISSIONS IN THE SUPPLY CHAIN (BASE YEAR 2019) This is a simplified depiction. Detailed explanations of KPIs and its corresponding assurance level are provided in the relevant chapters of the report. BMW GroupReport 2020 Combined Management Report General Information and Group Profile Managing sustainability The BMW Group’s long-term strategic course is determined by the full Board of Management, which is therefore also responsi- ble for implementing the Group’s sustainability goals. In 2019, the separate format of the Board of Management’s Sustaina- bility Board was fully incorporated into the regular meetings of the Board of Management, enabling sustainability issues to be even more systematically integrated within the BMW Group’s decision-making processes. Since then, sustainability has been treated like every other topic and discussed at Board of Manage- ment meetings as the need arises. Moreover, all requests for de- cisions referred to the Board of Management are required to be assessed beforehand in terms of their sustainability. A Strategy and Structure Circle, comprising the top management of the vari- ous company divisions, prepares the drafts of decisions to be tak- en for the Board of Management after also taking sustainability issues into account. The BMW Group’s corporate governance principles are set out in Corporate Governance Statement. detail in its GRI 102-18, 102-19, 102-20, 102-26, 102-27, 102-31, 102-33 The Group’s targets for sustainability are applied at business unit level and overall area of responsibility level. As a consequence, the individual targets set for managers include sustainability as- pects and criteria that have an impact on performance-based compensation. GRI 102-19, 102-28 The Supervisory Board decides on the amounts awarded to mem- bers of the Board of Management Remuneration Report, basing its decisions on the sustainable development of the BMW Group as a whole. Bonuses are partially based on personal performance and assessed primarily according to qualitative criteria. These in- clude ecological innovations (e. g. carbon emission reductions), leadership accomplishments and the ability to manage change processes. Additional criteria include enhancing the company’s attractiveness as an employer, progress in implementing the di- versity concept and activities that encourage corporate citizen- ship within the BMW Group. GRI 102-27, 102-28, 102-35 51 MANAGEMENT SYSTEM The BMW Group’s business management system fol- lows a value-based approach that focuses on profitability, consistent growth, value enhancement for capital pro- viders, sustainability, climate protection and job security. Capital is considered to be employed profitably when the amount of profit generated sustainably exceeds the cost of equity and debt capital. This strategy also secures the desired degree of corporate autonomy in the long term. The BMW Group’s internal management system is based on a multilayered structure. Operating perfor- mance is managed primarily at segment level. In order to manage long-term corporate performance and assess strategic issues, additional key performance figures are taken into account within the management system at Group level. In this context, the value added serves as one of several indicators for the contribution made to enterprise value during the financial year. This approach is made operational at both Group and segment level through key financial and non-financial performance indicators (value drivers). The link between value added and the relevant value drivers is presented in a simplified form below. BMW GROUP – VALUE DRIVERS Value added – Return on capital (RoCE or RoE) × Return on sales Capital turnover Cost of capital ÷ ÷ × Profit – Expenses Revenues Capital employed Average weighted cost of capital rate BMW GroupReport 2020 Combined Management Report General Information and Group Profile Due to the very high level of aggregation, it is im- practical to manage the business on the basis of value added. This key indicator is, however, used for reporting purposes. In addition, relevant value drivers having a sig- nificant impact on business performance and therefore on enterprise value are defined for each controlling level. The financial and non-financial value drivers are reflected in the key performance indicators used to manage the business. In the case of project-related decisions, the target system follows a project-oriented management logic that is based on net present values and profitability performance indicators, thereby providing a fundamental basis for decision-making. MANAGEMENT OF OPERATING PERFORMANCE AT SEGMENT LEVEL Operating performance at segment level is managed at an aggregated level on the basis of returns on cap- ital. Depending on the business model, the segments are measured on the basis of return on total capital or return on equity. Specifically, return on capital employed (RoCE) is used for the Automotive and Motorcycles segments and return on equity (RoE) for the Financial Services segment. These indicators combine a wide range of relevant economic information, such as profitability (return on sales) and capital efficiency (capital turnover) to measure segment performance and the development of enterprise value. 52 AUTOMOTIVE SEGMENT The most comprehensive key performance indicator used for the Automotive segment is RoCE. This indica- tor provides information on the profitability of capital employed and the operational business. Value driver analyses can be used to interpret the causes of a change in RoCE and derive suitable measures to influence its development. RoCE is measured on the basis of segment RETURN ON CAPITAL EMPLOYED profit before financial result and the average capital employed in the segment. The strategic target for the Automotive segment’s RoCE is 40 %. RoCE Automotive = Profit before financial result Average capital employed Profit before financial result in € million Average capital employed in € million Return on capital employed in % Automotive 2,162 4,499 17,026 15,513 2020 2019 2020 2019 2020 12.7 2019 29.0 Capital employed corresponds to the sum of all cur- rent and non-current operational assets, less liabilities that generally do not incur interest (e. g. trade payables and other provisions). Due to its key importance for the Group as a whole, the Automotive segment is managed on the basis of additional key performance indicators that have a significant impact on RoCE and hence on segment performance. These value drivers are the number of vehicle deliveries and the operating return on sales (EBIT margin: segment profit before financial result as a percentage of segment revenues) as the key performance indicator for segment profitability. Furthermore, the segment manages its compliance with fleet CO₂ targets in regulated markets. This also includes the proportion of total deliveries accounted for by electrified vehicles. Since compliance with regulatory requirements has a significant impact on the company’s success, business decisions relating to vehicle projects also take fleet CO₂ requirements into consideration. In order to take account of the increasing relevance of carbon emissions over the life cycle of a vehicle, in 2020 a control logic was agreed upon to measure this factor during the manufacturing phase (supplier network, logis- tics, production). BMW GroupReport 2020 53 Combined Management Report General Information and Group Profile MOTORCYCLES SEGMENT As with the Automotive segment, the Motorcycles segment is managed on the basis of RoCE. Capital em- ployed is determined on the same basis as in the Auto- motive segment. The strategic RoCE target for the Motor- cycles segment is 40 % as in the Automotive segment. RoCE Motorcycles = Profit before financial result Average capital employed RETURN ON CAPITAL EMPLOYED Motorcycles Profit before financial result in € million Average capital employed in € million Return on capital employed in % 2020 103 2019 194 2020 687 2019 660 2020 15.0 2019 29.4 The main value drivers include the number of de- liveries and the operating return on sales (EBIT margin: segment profit before financial result as a percentage of segment revenues) as the key performance indicator for segment profitability. BMW GroupReport 2020 54 Combined Management Report General Information and Group Profile FINANCIAL SERVICES SEGMENT As commonly practised in the banking sector, the Financial Services segment is managed on the basis of return on equity (RoE). RoE is defined as segment profit before tax, divided by the average amount of equity capital in the Financial Services segment. The target is a return on equity of at least 14 %. RoE Financial Services = Profit before tax Average equity capital RETURN ON EQUITY Financial Services 1,725 2,272 15,343 15,146 2020 2019 2020 2019 2020 11.2 2019 15.0 Profit before tax in € million Average equity capital in € million Return on equity in % STRATEGIC MANAGEMENT AT GROUP LEVEL Strategic management and the quantification of financial implications based on long-term corporate planning are performed primarily at Group level. Key performance indicators in this context include Group profit before tax and the size of the workforce at the year end. Group profit before taxes provides a comprehensive measure of the Group’s overall corporate performance after consolidation effects and a transparent basis for comparing performance over time. The information provided by these non-financial performance indicators is complemented by the two financial key performance indicators of pre-tax return on sales and value added. Value added, as a highly ag- gregated performance indicator, also provides an insight into capital efficiency and the (opportunity) cost of cap- ital required to generate Group profit. A positive added value means that a return on investment above the cost of capital has been achieved. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 55 VALUE ADDED GROUP in € million BMW Group Value added Group Earnings amount Cost of capital (equity + debt capital) Value added Group 2020 2019 2020 2019 2020 2019 5,464 7,369 8,061 7,812 – 2,597 – 443 = = earnings amount – cost of capital earnings amount – (cost of capital rate × capital employed) In order to determine the internal rate of return, risk-adjusted cost of capital rates are based on the average of actual rates in recent years. In light of the long-term nature of product and investment decisions, the follow- ing internal rates of return are used in conjunction with segment management: Capital employed comprises the average amount of Group equity and pension pro visions as well as the financial liabilities of the Automotive and Motorcycles segments employed at the end of the last five quarters in each case. The earnings amount corresponds to Group profit before tax, adjusted for interest expense incurred in conjunction with the pension provision and the fi- nancial liabilities of the Automotive and Motorcycles segments (profit before interest expense and taxes). The cost of capital is the minimum rate of return expected by capital providers in return for the capital employed. Since capital employed comprises an equity capital (e. g. share capital) and a debt capital element (e. g. bonds), the overall cost of capital rate is determined on the basis of the weighted average rates for equity and debt capital, measured using standard market procedures. The pre-tax average weighted cost of capital for the BMW Group in 2020 was 12 %, unchanged from the previous year. in % Automobile Motorcycles Financial Services 2020 2019 12.0 12.0 13.4 12.0 12.0 13.4 VALUE-BASED MANAGEMENT FOR PROJECT DECISIONS Operational business in the Automotive and Motor- cycles segments is largely shaped by the life-cycle-de- pendent character of investment projects, which have a substantial influence on future business performance. Project-related decisions are therefore a crucial element of financial management in the BMW Group. Project decisions are based on calculations derived from the expected cash flows of each individual project. Calculations are made for the full term of a project, in- corporating future years in which the project is expected to generate cash flows. Project decisions are taken on the basis of net present value and the internal rate of return calculated for the project. The net present value indicates the extent to which the project will be able to generate future net cash in- flows over and above the cost of capital. A project with a positive net present value enhances future value added and therefore results in an increase in enterprise value. The internal rate of return of the project shows the aver- age return on the capital employed in the project. In this respect, there are conceptual links between the internal rate of return and the multi-year average RoCE. For all project decisions, the project criteria and long- term periodic results impact are measured and incorpo- rated in the long-term Group planning. This approach enables an analysis of the impact of project decisions on periodic earnings and rates of return for each year during the term of the project. The overall result is a cohesive management model. BMW GroupReport 2020 Combined Management Report General Information and Group Profile HOW THE BMW GROUP CREATES VALUE Within the BMW Group, value creation is a com- prehensive process involving a broad range of positive factors, some of which interact in complex ways. These factors may be of a financial or a non-financial nature and relate to both tangible and intangible values that are geared towards creating additional value using a mini- mum of resources. These input factors form the basis that drives the BMW Group’s overall performance. According to the input-output model of the IIRC framework, the factors on both the input and the output side are divided into six different types of capital, which can be distinguished as follows: 1. Financial capital 2. Human capital 3. Intellectual capital 4. Relationship capital 5. Produced capital 6. Natural capital 56 The BMW Group’s financial capital is defined in terms of equity capital and total assets, the latter cor- responding to the balance sheet total. An appropriately high equity ratio (i. e. equity as a percentage of total assets) makes a significant contribution to safeguarding the corporate independence of the BMW Group and forms a solid basis for high earnings and therefore stable dividends for the shareholders. The BMW Group’s solid economic base is inextricably linked with its human and intellectual capital. These two precious assets constitute the greatest factor in the enduring success of the Group as a whole and play a key role in tackling the challenges of the future. They combine the knowledge, skills, abilities, strengths and talents of the BMW Group’s workforce and are among the most important value factors for the Group. In its international R&D network, the BMW Group offers its innovation-minded employees excellent condi- tions that enable them to create the solutions that will shape tomorrow’s world. The high degree of motivation to innovate and the willingness to perform, both of which are firmly anchored throughout the entire work- force, are equally expressed in the lively participation in Group-wide ideas management as well as in the outstanding level of employee satisfaction. A key pillar of the BMW Group’s personnel development strategy is to develop this success factor in a targeted manner. In addition to its many other levers, the Group attaches great importance to the personal advancement of each individual, which also includes providing opportunities for further training. For the BMW Group, innovation means rigorously taking the next step. In this context, it also collaborates closely with its partners in the supplier network. The stable relationships, which have developed over a long period of time in many cases, have created a capital of inestimable value, a fact amply demonstrated not least in the 2020 pandemic year. Even under the challeng- ing conditions of the global lockdown in 2020, the BMW Group’s supply chains remained firm; a feat only possible when the partners share common standards and values and can truly depend on one another. Purchasing and Supplier Network The backbone of the BMW Group’s produced capital is formed by the 31 plants in its global production net- work, across which it manufactured a total of 2.26 million premium vehicles during the 2020 reporting period. Thir- teen of these plants (over 40 %) are already producing electrified vehicles alongside conventional models. Natural capital describes all the renewable and non-renewable resources deployed in the manufactur- ing process. The BMW Group is an efficiency-oriented company, and for that reason both the enterprise as a whole and its individual employees have always de- ployed natural resources sparingly as a matter of course. The consistently positive development of these capital indicators in recent years underscores this common corporate identity, a fact additionally confirmed by the assessments of independent rating agencies BMW Stock and Capital Markets in 2020. All in all, these various aspects form the basis of the BMW Group’s enduring success. Even minor changes in individual factors can directly influence the overall result. This holistic BMW Group approach is intended to ensure that all available resources are used in a responsible man- ner. Value Added Statement BMW GroupReport 2020 Combined Management Report General Information and Group Profile Financial capital 61,520 216,658 Total assets (€ million) Equity capital (€ million) 120,726 Human capital 279 Workforce at end of year Training and education expenditure (€ million) Intellectual capital 6,279 1,561 R&D expenditure (€ million) Employee ideas implemented in conjunction with CRE8 Ideas Management Relationship capital 55.5 79 Proportion of production-relevant purchasing volume within the CDP supply chain programme (in %) Purchase volume (€ million) Produced capital thereof 13 31 Number of plants plants producing electrified vehicles Natural capital 100 2.12 Energy consumption per produced vehicle (in MWh) Proportion of electricity from renewable energy sources (in %) How the BMW Group creates value Output Input This diagram shows an illustrative overview of key performance indicators (KPIs) disclosed in the report. Detailed explanations of KPIs and its corresponding assurance level are provided in the relevant chapters of the report. Further information is available at: report.bmwgroup.com 57 Financial capital 1,253 4,830 Dividend total ( proposal to the Annual General Meeting) (€million) Profit before financial result (EBIT) (€ million) Human capital 12,244 82 Wages/salaries/ social insurance contributions (€ million) Employee satisfaction (in %) Intellectual capital 6.3 18.2 First-year benefits from implemented employee ideas (CRE8) (€ million) R&D ratio (in %) Relationship capital 35 60 Proportion of value creation from suppliers (in %) Proportion of suppliers in the CDP Supply Chain programme with an assessment of at least B (in %) Produced capital 2.33 192,662 Deliveries to customers (in million units) Deliveries of electrified vehicles Natural capital − 56.7 − 53 Improvement in resource consumption and emissions from vehicle production (in %, average) Development CO2 emissions EU new car fleet since 1995 (in %) BMW GroupReport 2020 Combined Management Report General Information and Group Profile COMPLIANCE AND HUMAN RIGHTS Responsible and lawful conduct is fundamental to the success of the BMW Group. Compliance is an integral part of our corporate culture and the reason why share- holders, customers, business partners and the general public place their trust in us. The Board of Management and the employees of the BMW Group are obliged to act responsibly and in compliance with applicable laws and regulations. The BMW Group also expects its business partners to conduct themselves in the same manner throughout the entire value chain. As an active corpo- rate member of the German Institute for Compliance (DICO), the BMW Group provides practical support for compliance management in Germany and contributes to its further development. COMPLIANCE AS A CORPORATE FUNCTION The BMW Group Compliance Management System is designed to ensure that the BMW Group, its representa- tive bodies, its managers and staff act in a lawful manner at all company locations. Particular emphasis is placed on measures to ensure compliance with antitrust legislation and avoid the risk of corruption or money laundering, as well as promoting respect for human rights. Activities to avoid non-compliance with the law are managed and monitored by the BMW Group Compliance Committee. 58 These activities include legal monitoring, internal compli- ance regulations, communications and training activities, complaint and case management, compliance reporting and compliance controls, as well as following through with sanctions in cases of non-compliance. REGULAR COMPLIANCE REPORTING TO BOARD OF MANAGEMENT AND SUPERVISORY BOARD The BMW Group Compliance Committee reviews the effectiveness and efficiency of the Compliance Manage- ment System on an ongoing basis. It reports regularly and on a case-by-case basis to the Board of Management and the Audit Committee of the Supervisory Board on all compliance-related issues, including the progress made in refining the BMW Group Compliance Management System, details of investigations performed, known infringements of the law, sanctions imposed and correc- tive / preventative measures implemented. This also en- sures the Board of Management and Supervisory Board are immediately notified of any cases of particular sig- nificance. On the basis of this information, the Board of Management keeps track of and analyses developments and trends in the field of compliance and initiates the measures needed to improve the Compliance Manage- ment System. The following were among the measures implemented in 2020: — Board of Management decision of 15 December 2020 establishing a BMW Group Chief Compliance Officer, effective 1 January 2021, to further strengthen com- pliance management at the BMW Group. — Creation of six new compliance functions within the Board divisions of BMW AG, with a multi-day onboarding programme for the new Compliance Officers. — Stepping up antitrust compliance measures. — A company-wide tone-from-the-top communications initiative highlighting the compliance management culture at the BMW Group. GRI 102-33 BMW GROUP COMPLIANCE MANAGEMENT SYSTEM Supervisory Board BMW AG Board of Management BMW AG BMW Group Compliance Committee BMW Group Compliance Committee Office BMW Group Compliance Network Annual Report Annual Report Annual Compliance Reporting Run Compliance Instruments of the BMW Group Compliance Controls Compliance Reporting Compliance Case Management Compliance Processes and IT Systems Compliance Academy and Culture Compliance Strategy Legal Compliance Monitoring and Trends Compliance Risks and Preventive Excellence Compliance Codes and Internal Regulations Compliance Communications BMW GroupReport 2020 Combined Management Report General Information and Group Profile COMPANY-WIDE COMPLIANCE NETWORK The decisions taken by the BMW Group Compliance Committee are drafted in concept and implemented operationally by the BMW Group Compliance Commit- tee Office. The BMW Group Compliance Committee Office has more than 20 employees and forms part of the organisation that reports to the Chairman of the Board of Management. For operational implementation of compliance topics, it is supported by a Group-wide compliance network of around 240 BMW Group Com- pliance Responsibles (heads of local units) and over 80 local Compliance Officers (heads of local compliance Compliance management in the Financial Services segment The financial services business entails specific risks arising from the nature of its products and processes. The focus here is on an- ti-money-laundering measures, compliance with financial sanc- tions, information privacy and data protection, fraud prevention, and legislative and regulatory monitoring, as well as consum- er protection. To address the risks in these areas, a “compliance coordination” function was created within the Financial Services segment as a delegated function of the BMW Group Compliance Committee Office. Based on an annual trend analysis, it identifies new or modified regulatory requirements in the financial services sector and defines the necessary measures. Implementation by BMW Group financial services companies worldwide is tracked on a quarterly basis. Compliance is incorporated into the target man- agement process for the Financial Services segment. Integration of specific targets into strategic management underlines the im- portance of this topic and helps monitor implementation. A man- agement system is also used to identify risks of non-compliance with internal and external regulations in the early stages. functions). The specific compliance activities required for financial services business are coordinated by a separate compliance department within the Financial Services segment. The BMW Group compliance organisation remained fully operational in 2020, despite the unique demands of the coronavirus situation. COMPLIANCE MANAGEMENT SYSTEM AIMED AT ENSUR- ING LAWFUL CONDUCT THROUGHOUT THE GROUP The various elements of the BMW Group Compli- ance Management System are shown in the diagram on the previous page BMW Group Compliance Management System and are applicable to all BMW Group organisational units worldwide. The BMW Group Legal Compliance Code and BMW Group Code on Human Rights, which form the core of the Group’s Compliance Management System, are supplemented by an internal set of rules. The BMW Group Policy “Compliance” sets out binding strategic requirements for BMW Group compliance management, its premises and basic principles, as well as for implementation in the business departments. The BMW Group Policy “Antitrust Compliance”, which establishes binding rules of conduct for all employees across the BMW Group to prevent unlawful restriction of competition, was supplemented by several additional manuals in 2020 and deserves particular mention. The rules set out in the BMW Group Policy “Corruption Pre- vention” and the BMW Group Instruction “Corporate Hospitality and Gifts” deal with lawful handling of gifts and benefits and define appropriate assessment criteria and approval procedures. The BMW Group Instruc- tion “Anti-money-Laundering” defines company-wide 59 standards for anti-money-laundering for trade in goods and the financial services sector. Compliance measures are determined and prioritised on the basis of a regular group-wide compliance risk assessment that relies on data-based risk indicators and transaction validation, among other methods. Various internal media and communications ma- terials are used to raise awareness among staff across all compliance issues, including newsletters, employee newspapers and the compliance homepage in the BMW Group intranet, where employees can find all compliance-related information and training materials. A compliance tone-from-the-top initiative called “Walk- the-Talk” was organised for the first time in 2020 to boost employee awareness of the importance of creating a cul- ture of transparency and trust. Senior managers gave keynote speeches on a wide range of compliance issues at forums and employee meetings. The training opportunities offered by the BMW Group Compliance Academy are refined on an ongoing basis for specific target groups. As well as imparting knowledge, online and classroom training options with company-spe- cific case studies play an important role in reinforcing compliance in the corporate culture. The online training modules must be repeated by the required target groups every two years and include a final test. Successful com- pletion of the test is confirmed by a certificate. These courses are also offered on an optional basis to all other employees. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 60 More than 42,800 managers and staff worldwide have so far received training in the basic principles of com- pliance, including the content of the Legal Compliance Code and the topic of corruption prevention, and hold a valid training certificate. Successful completion of the training programme is mandatory for all BMW Group managers. The company makes sure that newly recruited managers and promoted staff receive compliance train- ing. Online training in antitrust compliance is mandatory for managers and staff exposed to the associated risks as a result of their functions or on specific occasions. A total of more than 38,300 managers and employees worldwide have so far completed antitrust compliance training and currently hold a valid certificate. Classroom and virtual training, as well as multi-day coaching sessions, are also held in local markets for all key compliance topics. One main emphasis here is on department-specific antitrust training – an area that was significantly expanded in 2020. GRI 205-2 Any member of staff with questions or concerns relating to compliance is expected to discuss these matters with their managers and with the relevant de- partments within the BMW Group: in particular, with the BMW Group Compliance Committee Office, Legal Affairs and Corporate Audit. The BMW Group Compli- ance Contact also serves as a further point of contact and provides non-employees with a system for reporting concerns relating to compliance. Communication with the BMW Group Compliance Contact may remain anon- ymous, if preferred. BMW Group employees worldwide also have the opportunity to submit information about possible breaches of the law within the company anon- ymously and confidentially in several languages via the BMW Group SpeakUP Line. The BMW Group assures those providing information that no attempt will be made to determine their identity should they choose to remain anonymous. Unauthorised use is naturally excluded from this. All compliance-related queries and concerns are documented and followed up by the BMW Group Compliance Committee Office using an electronic Case Management System. If necessary, Corporate Audit, Corporate Security, the legal departments or the Works Council may be called upon to assist in the process and address any issues. Various IT systems support BMW Group employees with the assessment, approval and documentation of compliance-relevant matters. For example, all exchange activities with competitors must be documented and approved in a special compliance IT system. The same applies to verifying legal admissibility and documenting benefits, especially in connection with corporate hospi- tality. The BMW Group also uses an IT-based Business Relations Compliance programme to ensure the reliabil- ity of its business relations. Relevant business partners are checked and evaluated for potential compliance risks. Appropriate measures are implemented to manage compliance risks based on the results of the evaluation. A further IT system is used to verify customer integrity as required under anti-money-laundering regulations. IT solutions for automated reporting of compliance training activities and documentation of all compliance activities conducted by the business units were also under devel- opment during the reporting year. Through the Group-wide reporting system, compli- ance responsibles across all organisational units of the BMW Group report, on both an ongoing and adhoc basis, on the compliance status of their respective units, on any identified legal risks and incidences of non-compliance, as well as on sanctions and corrective / preventative meas- ures implemented. Compliance with and implementation of compliance rules and processes are audited regularly by Corporate Audit and subjected to control checks by the BMW Group Compliance Committee Office. Corporate Audit carries out on-site audits as part of its regular activities. The BMW Group Compliance Committee also engages Cor- porate Audit to perform compliance-specific checks and, if necessary, brings in Corporate Security to investigate suspected cases. Two BMW Group Compliance Spot Checks, sample tests specifically designed to identify potential corruption risks, and an antitrust compliance validation (to identify and audit possible antitrust risks) were carried out in addition in 2020. The organisational units for audit are selected on the basis of a Group-wide compliance risk assessment. GRI 205-1 In an antitrust investigation, the EU Commission alleges that five German car manufacturers colluded with the aim of restricting competition for innovation with regard to certain exhaust treatment systems installed in diesel and petrol-driven passenger vehicles. The current investigation is solely concerned with possible infringe- ments of competition law. For further details, please see Legal Risks within the Report on risks the section on note 10 to the Group Financial and opportunities and Statements. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 61 MANAGERS HAVE UNIQUE RESPONSIBILITY AS COMPLIANCE ROLE MODELS COOPERATION BETWEEN COMPLIANCE AND EMPLOYEE REPRESENTATIVES Managers, in particular, bear a high degree of re- sponsibility and must set a good example with regard to preventing infringements. Managers throughout the BMW Group acknowledge this principle by signing a written declaration, in which they also undertake to make staff working for them aware of legal risks. Manag- ers must, at regular intervals and on their own initiative, verify compliance with the law. It is important to signal to employees that they take compliance risks seriously and that disclosing relevant information is extremely valuable. Managers should remain open to discussion and consider differing opinions. Any indication of non-compliance with the law must be rigorously investigated. SANCTIONS MANAGEMENT It is essential for compliance at the BMW Group that employees are aware of and comply with applicable legal regulations. The BMW Group does not tolerate violations of the law. Culpable violations of the law result in em- ployment-contract sanctions and may involve personal liability consequences for the employee involved. Compliance is also an important factor in safeguard- ing the future of the BMW Group workforce. With this in mind, the Board of Management and the national and international employee representative bodies of the BMW Group have agreed on a binding set of joint prin- ciples for lawful conduct. Employee representatives are regularly involved in the process of refining compliance management within the BMW Group. WORLDWIDE IMPLEMENTATION OF LABOUR STANDARDS AND RESPECT FOR HUMAN RIGHTS BMW Group models for ensuring compliance with environmental and social standards throughout its value chain are based on various internationally recognised guidelines. This especially applies to the Guidelines for Multi- national Companies issued by the Organisation for Economic Cooperation and Development (OECD), the Human Rights, the content of the able Development and the United Nations Environment Programme’s (UNEP) Declaration on Cleaner Production. The BMW Group con- centrates on topics and action areas where it can exert its influence as a commercial enterprise. GRI 102-12, 102-16 UN Guiding Principles on Business and ICC Business Charter for Sustain- With the signing of the UN Global Compact by the Board of Management of BMW AG in 2001 and the “Joint Declaration on Human Rights and Working Conditions in the BMW Group”, which was adopted in 2005 and up- dated in 2010, the BMW Group has committed to abide by internationally recognised human rights and, specif- ically, the ILO core labour standards. The BMW Group Code on Human Rights and Working Conditions, which was published in 2018 to provide further clarification, was ratified by the Board of Management and employee representatives. This affirms the BMW Group’s com- mitment to human rights and outlines how it promotes respect for human rights and, specifically, how it imple- ments the ILO Core Labour Standards in its business operations worldwide. The Code was also part of the compliance communications initiative “Walk-the-Talk”. The BMW Group conducts specific training on the sub- ject of human rights: for instance, training Purchasing staff to be aware of human rights issues. GRI 412-2 In its annual compliance reporting, all organisational units of the BMW Group are also asked for a local risk assessment of potential for human rights abuses. Their responses form the basis for developing further measures for the department to minimise the risks. GRI 412-1 BMW GroupReport 2020 Combined Management Report General Information and Group Profile Specific human rights risks arise in the supply chain due to the collaborative, cross-border and conti- nent-spanning nature of value creation processes in the automotive industry. For this reason, the BMW Group has integrated respect for human rights into its Supplier Sustainability Policy and follows an appropriate risk manage- ment process. In addition to the company’s international purchasing terms and conditions, BMW Group dealer and importer contracts also contain a clause on com- pliance and human rights. Human rights obligations are also considered in choosing sites and in important investment decisions. GRI 412-3 In order to meet increasing requirements in the area of human rights, the BMW Group discusses various legislative proposals at German and European level through associations and initiatives and participates in the Automotive Industry Dialogue as part of the Ger- man government’s National Action Plan on Business and Human Rights. The German Federal Ministry of Labour and Social Affairs featured a practical example from the BMW Group on its CSR website. As part of its leadership of the CSR / Human Rights Working Group of the German Institute for Compliance (DICO), various as- pects of human rights management in companies were discussed among members and presented at the DICO Forum in October 2020. INNOVATION AND CUSTOMER ORIENTATION FOCUS ON DRIVETRAIN TECHNOLOGIES 62 A constant striving for innovation, for something new and better, is a concept deeply anchored in the corpo- rate culture of the BMW Group – in the thinking of its employees, in its processes and also in the identity of its brands. The benchmark and the goal of the BMW Group’s activities is to identify the wishes of customers worldwide in advance, in order to actively help shape trends and thereby drive transformation – a strategy discerniable in production vehicles such as the BMW iX *. In its develop- ment work, the BMW Group focuses on two key areas. Firstly, innovative digital solutions that make people’s everyday lives easier and at the same time protect the environment, and secondly, as a premium provider in its industry, the Group sees it as an obligation to offer cus- tomers a diverse range of customised, efficient drivetrain technologies ranging from all-electric drive systems, to plug-in hybrids and highly efficient internal combustion engines. This also includes hydrogen fuel cell technology, which the Group believes could become an additional option in the long term. The BMW Group’s culture of innovation is most deeply rooted in its global research and development network. However, innovation is a lot more than that for the BMW Group: throughout the entire company it is both the basis and the driving force behind the quest to replace the good with the better. Innovative solutions benefit society in a number of ways: economically, eco- logically and socially. The dynamics of the markets in which the BMW Group operates are largely determined by customer expectations and therefore by demand. The BMW Group therefore focuses on the wishes and needs of its cus- tomers. Market expectations have a direct impact on the range of vehicles on offer. How big does the vehicle need to be? Which drivetrain variant fits your own lifestyle? For this reason, the BMW Group offers a broad range of drivetrain systems and aims to offer corresponding electrified models for all of its brands and for every series. Ultimately, a business model is successful and sustainable in the long term by offering tailor-made solutions and assuring customers who are confident in their purchasing decisions. Since 2020, the BMW X3 has been the benchmark in this regard. It is now available in all four drivetrain variants: as an iX3 * with an all-electric drivetrain, as a plug-in hybrid or as a model powered by a highly efficient diesel or petrol engine. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 63 THE FIFTH GENERATION OF ELECTRIC DRIVETRAINS: A MAJOR LEAP IN TERMS OF PRODUCTION AND SUSTAINABILITY THE BMW GROUP COVERS THE ENTIRE PROCESS CHAIN FOR ELECTRIC DRIVETRAINS CAN THE HYDROGEN FUEL CELL SERVE AS A BUILDING BLOCK GOING FORWARD? Customer-oriented innovations frequently begin with basic research. Built up over many years, the BMW Group’s expertise makes sustainable solutions possible. The new, in-house-developed electric motor does not contain any rare earth elements. The latest generation of batteries requires two-thirds less cobalt than its predecessors. The BMW Group also considers the factor of sustainability when sourcing the cobalt it uses. The metal is acquired transparently via a certified process and supplied to the battery cell producers for further processing. Details are available in the chapter Purchasing and Supplier Network Purchasing and Supplier Network. The BMW Group has contractually agreed with the battery cell suppliers for the fifth generation of its eDrive electric drivetrain that only green electricity from renewable sources will be used in their production pro- cesses, which should reduce carbon emissions by some ten million tonnes over the next ten years. In this fifth generation of the BMW Group’s electric drivetrain, the electric motor, transmission and power electronics are also installed within a compact space. The outstanding efficiency of the drivetrain components and the high energy density of the high-voltage battery enable ranges that conventional electric vehicles can only achieve with significantly larger and correspondingly heavier batteries and therefore lower efficiency. This electric drivetrain was deployed for the first time in the BMW iX3 *, which was launched in 2020. From 2021 onwards, further all-electric models such as the BMW iX * or the BMW i4 will be powered by this state-of-the-art technology. * See Fuel Consumption and CO2 Emissions Information. Whether electric motors, high-voltage batteries, charging equipment or power electronics – since 2011 the BMW Group has gained extensive experience with all the components used in eDrive technology and places its emphasis on in-house developments. By the end of 2022, all German vehicle plants will produce at least one fully electric vehicle. The production system is capable of manufacturing vehicles either with internal combustion engines or electric drivetrains on a single line and can therefore also respond flexibly in terms of the type of drivetrain required by the customer. This level of flexibility in production allows the BMW Group to meet customer expectations in an ideal way. At the BMW Group’s Battery Research Centre, work on battery cells is currently focusing on features that provide a high degree of customer value, including energy density, peak power, longevity, charging properties, costs, behaviour at various temperatures and, last but not least, safety. At the same time, the BMW Group is building a pilot plant for lithium-ion battery cells near Munich, making the BMW Group the first automotive manufacturer to singlehandedly cover the entire process chain of electric driving and master it in technological terms. The BMW Group is also investing in the enhanced development of hydrogen fuel cell technology. The BMW i Hydrogen NEXT, which is based on the X5, al- ready awakened a great deal of interest among visitors at the IAA 2019. In the long term, hydrogen technology could become a further component in the BMW Group’s drivetrain range. If the supply of renewably produced hydrogen can be ensured, this technology will provide an attractive option for combining emissions-free mobility with long-distance capability and short refuelling times. The BMW Group is convinced that different forms of drivetrain will continue to exist side by side in the future, as customer expectations cannot be met with a single solution on an international basis. Beginning in 2022, the BMW Group will present a low-volume series of the BMW i Hydrogen NEXT featuring the second generation of its hydrogen fuel cell drive system. To make this aim a reality, the BMW Group has been collaborating success- fully with Toyota Motor Corporation since 2013. The new drivetrain technology will be combined with the fifth generation of the eDrive, which will then generate its en- ergy from a fuel cell instead of a high-voltage battery. The BMW Group has also developed this technology in-house as an overall system. However, the appropriate political and infrastructural framework conditions first need to be created if green hydrogen is to become widely available in sufficient quantities and at competitive prices. Hy- drogen can also play a key role in powering heavy-duty and commercial vehicles with the aim of making logistics carbon-neutral going forward. The BMW Group’s Leipzig and Spartanburg plants have already been using trans- port vehicles powered by renewably produced hydrogen for a number of years. BMW GroupReport 2020 Combined Management Report General Information and Group Profile THE BMW iX *: ELECTRIC FROM THE GROUND UP In November 2020, the BMW Group gave the public its first preview of the BMW iX, the first of which are scheduled for delivery to customers in the course of 2021. Right from the start, the BMW iX was designed exclusively to provide electric mobility that is suitable for everyday use. The vehicle is powered by the fifth genera- tion of BMW eDrive technology, which the BMW Group has developed in-house and consists of twin electric motors, power electronics, charging technology and a high-voltage battery produced without the use of rare earths. Fully electric and featuring four-wheel drive technology, it will enable ranges of over 600 km in the WLTP cycle. Equipped with innovative charging technol- ogy and a highly efficient drivetrain, the BMW iX can be charged to enable a range of over 120 km in a mere ten minutes. Thanks to the development of new technologies, the kidney-shaped grille of the BMW iX has now been given a new function as a smart surface where camera technology, radar and other sensor-based features are located behind a transparent exterior. Through the use of innovative materials, the surface of the grille also has a self-healing effect that makes light scratches disappear by themselves. Moreover, as the first 5G-capable model to be made by a premium manufacturer, the BMW iX will also be the BMW Group’s technology flagship in terms of digitalisation going forward. In addition, gigabit Eth- ernet technology is being used for the first time in this innovative vehicle, enabling extremely large volumes of data from sensors and antennas, for example, to be trans- mitted through the vehicle within fractions of a second and then processed in the centralised high-performance computers of the vehicle’s on-board system. Moreover, some of this data is also transmitted to the cloud, an- alysed and returned to the vehicle fleet, depending on the situation, creating new services for customers. For instance, information on danger spots detected by these vehicles, such as black ice, will be made available to the entire fleet, as well as tips on where a free parking space is most likely to be found upon arrival. When using all these digital technology innovations, the BMW Group places great emphasis on ensuring that drivers and pas- sengers can perceive and operate new features intuitively, effortlessly and without distraction – regardless of how technically complex they may be. These functions are known as shy tech, i. e. technology that only becomes visible when needed. * See Fuel Consumption and CO2 Emissions Information. 64 ARTIFICIAL INTELLIGENCE – THE BASIS FOR AUTOMATED DRIVING AND INTERACTION WITH THE VEHICLE Since the end of 2020, over 400 data-driven and AI applications have been helping the BMW Group pro- cess and interpret big data throughout all relevant areas of the company. Artificial intelligence is also deployed when it comes to developing an algorithm that enables safe and predictive automated driving features, helping to analyse the approximately 250 million kilometres of “experience” gained to date (as of October 2020). Even now, BMW Group customers are already experiencing the capabilities of AI technologies as they drive. Since the end of 2018, an Intelligent Personal Assistant has been offering them support upon request. Since the second half of 2020, more than 70 % of BMW vehicles have been equipped with the BMW Intelligent Personal Assistant as standard. For example, commands given in natural speech enable drivers to comfortably operate numerous vehicle functions without having to take their hands off the steering wheel. CUSTOMER-CENTRIC DEVELOPMENT Via the BMW Group’s international development net- work, the varying regional needs and requirements of its customers worldwide are being incorporated into design, research and development. Group locations worldwide are in direct dialogue with their various regions. The BMW Group conducts an average of 70 customer studies per year in the area of display and operating concepts alone. The Group also researches dialogue formats and upcoming trends. BMW GroupReport 2020 Combined Management Report General Information and Group Profile In a state-of-the-art innovation process, the BMW Group also uses its ability to change perspectives when required. In this respect, it is the first automotive manufacturer to collaborate with Epic Games, a com- puter games developer. The BMW Group has modified gaming technologies and adapted them for use in vehi- cle development as well as in production planning and customer presentation at the retail level. In the field of vehicle development, new components and systems can therefore be tested intensively at a very early stage so that they can later be used by the customer simply and intuitively to the greatest extent possible. Technologies originating from the computer games industry such as mixed reality and game engines are key elements that are making an important contribution in this respect. Internationally staffed teams of developers work simul- taneously and interactively with one another before hardware prototypes are additionally made available. In a mixed reality environment, technical solutions can be analysed at an early stage on a virtual ride before the first samples are made physically available, effectively cutting testing costs and, last but not least, minimising development times. The BMW Group operates an international network of research and development locations to ensure that ideas can swiftly and directly become innovations for customers in the form of ideas to offer. The network provides the ideal environment for experts to work cre- atively in internationally connected teams to promote knowledge transfer and even faster, integrated, flexible collaboration for effectively developing the major trends of the future. This combined network of research and development expertise is continuously being expanded and strengthened in a competence-oriented manner. 65 INNOVATION CULTURE IN THE MAKING: A NEW CENTRALISED HUB OF THE BMW GROUP’S GLOBAL RESEARCH AND DEVELOPMENT NETWORK COMES INTO BEING. The Munich Research and Innovation Centre (FIZ) is the main hub of the Group’s international network of 14 research and development locations. The first phase of construction completed in the course of enlarging the Munich FIZ went into operation in autumn 2020. On the FIZ campus, the focus is on transformation and the future-related topics of electrification, digitalisation and connectivity. With over 90 petabytes of storage capacity, 100 test benches, 200 laboratories and the directly adja- cent prototype construction facility, the FIZ has grown to become one of the largest research and development centres in Europe. BMW Operating System 7: new features in version 07 / 20 smartphones wirelessly within the vehicle and access their apps via touch control without having to directly operate their smartphone. Navi- gation instructions provided by Google Maps are shown on both the info display and the head-up display. BMW eDrive zones: plug-in hybrids can use geofencing to detect when they are entering an environmentally restricted zone or a city centre. They then automatically switch to electric mode after previously ensur- ing that the vehicle’s battery is fully charged, enabling them to drive lo- cally emissions-free and almost silently where it has the greatest impact. Charging management: electrified models are provided with addition- al information and services via the Connected Charging feature. Pub- lic charging stations and their availability are displayed and addition- al information is also shown, for example on providers, opening hours or suggestions for places of interest and cafes or restaurants nearby. Finding a parking space: customers can be assisted via various services when searching for a parking space. The on-street parking information, for example, calculates where a parking space is most likely to be free. Digital key: in collaboration with Apple, the BMW Group is the first car manufacturer to offer its customers the option of using their iPhone as a fully fledged digital car key. It unlocks the vehicle at the door handle and the engine can be started when it is placed in the smartphone com- partment. Access rights can be shared with other people and config- ured in the process and there is a specially designed mode for inexpe- rienced drivers. Navigation / BMW Maps: the cloud-based system has a great many ad- vantages. The route calculation feature combines real-time informa- tion with forecast models and therefore acts more dynamically and swiftly than ever. Additional context-based information such as rat- ings, business opening hours and pictures of interesting places pro- vide BMW Group customers with excellent support. Entering a des- tination has now been made far more convenient due to the free text function, which uses a single search line and adds suggestions for rel- evant search terms. Intelligent Personal Assistant: the BMW Group has revamped the look of the BMW Intelligent Personal Assistant and made it more emotion- al. The Assistant is able to distinguish between the driver’s and the pas- senger’s speech, learns and even leans towards the respective conver- sation partner. Apple Car Play allows navigation information from Apple Maps to be displayed on both the head-up display and the info display. Google Android Auto is also integrated: customers can use functions on their BMW GroupReport 2020 Combined Management Report General Information and Group Profile 66 ALWAYS UP TO DATE VIA RADIO INTERFACE INNOVATION IN PRODUCTION INSPIRATION AND COOPERATION In production scenarios, innovations can act in two different ways: they serve the purpose of conserving re- sources and thus further boosting efficiency Production, Purchasing and Supplier Network, but they can also help to implement new product ideas and design options. Dig- italisation is thus also paving the way for completely new applications that enable owners to customise their vehicles, such as by adding individual equipment features for the MINI. Furthermore, the BMW Group opened the Additive Manufacturing Campus in summer 2020. Production, research and even further training on the subject of additive manufacturing (i. e. 3D printing) are combined under one roof at the location. The Campus is also capable of manufacturing components for series production vehicles. The best ideas often come into being when different partners work together. Regional BMW Group Technolo- gy Offices are searching for promising young companies worldwide in fields of innovation such as sensor tech- nology, artificial intelligence, battery technology, smart materials, natural user interfaces and smart logistics. Cooperations in which the strengths of the BMW Group complement those of established partners also help to enhance the innovative strength of the BMW Group. Cooperations and partnerships For the BMW Group, main- taining its innovation network also includes intensive dialogue with selected colleges and universities. Every year, thousands of students come to the BMW Group to complete an internship or write a scientific thesis. Many Group employees also work as lecturers at universities and higher education institutions. The BMW Group maintains close partnerships with six universities and research institutions to conduct joint research projects that combine knowledge transfer with the training of highly qualified junior staff. The remote software upgrade function keeps BMW vehicles continuously up to date. The software updates can be conveniently downloaded to the vehicle whether at home or on the road and contain improvements or even fully new vehicle features. In autumn 2020, the BMW Group rolled out the most extensive remote soft- ware upgrade in its history. The free-of-charge improve- ments and new attractive features were made available over-the-air to more than 750,000 BMW Operating System 7 (version 07 / 20) vehicles worldwide. Moreover, Remote Software Upgrade allows drivers to purchase and activate additional optional features. For example, the Highbeam Assist or Active Cruise Control with the Stop&Go function can also be subsequently in- stalled quickly and easily over the air, even on vehicles that have already been delivered to customers. Customers can therefore benefit from the latest technological devel- opments and have the opportunity to test functions that were not yet needed at the time of purchase for a certain period of time with the option to purchase them. Apps have been offering customers an effortless connection between their smartphones and the vehicle since 2013. A new generation of the My BMW app has been available on 30 European markets as well as in China and Korea since December 2020. My BMW is the new universal interface to the vehicle and, depending on how it is equipped, also enables selected features to be activated remotely, such as vehicle localisation. BMW GroupReport 2020 Combined Management Report General Information and Group Profile 67 Cooperations and partnerships HERE YOUR NOW Under the name YOUR NOW, the BMW Group and Daimler AG are offering innovative, customer-friendly solutions for business partners, cities and municipalities looking to make their mobility more efficient and sustain- able. The cooperation includes the joint ventures FREE NOW (ride-shar- ing services) with REACH NOW (on-demand mobility and multimodality), PARK NOW (parking) with CHARGE NOW (charging) and SHARE NOW (car sharing). Further information is available in the chapter Mobility Patterns. To maintain its successful course in the long term, the BMW Group en- ters into targeted cooperations and partnerships not only with companies from the automotive industry, but also with technology leaders from other sectors. The aim of interacting with external partners is to combine exper- tise against the backdrop of rapid technological change and make innova- tions available to customers within the shortest time possible. BMW Brilliance Automotive (BBA) BMW Brilliance Automotive Ltd. is a 50:50 joint venture between the BMW Group and Brilliance China Automotive Holdings Ltd., which was founded in 2003. BMW Brilliance Automotive Ltd. produces BMW brand models in one engine plant and two automobile plants in Shenyang, Chi- na. Production of the BMW iX3 * began there in 2020. The BMW Group intends to increase its shareholding in BBA from 50 % to 75 %. The BMW Group already signed an agreement to that effect with its partner Brilliance China Automotive Holdings Ltd. (CBA) in 2018. Fol- lowing approval by the Annual General Meeting of CBA, completion of the agreement remains subject to regulatory approvals. Spotlight The aim of Spotlight Automotive Limited (Spotlight), a joint venture be- tween the BMW Group and the Chinese manufacturer Great Wall Motors, is to produce all-electric MINIs for the BMW Group as well as electric vehi- cles for Great Wall Motors. The joint venture also includes the joint devel- opment of battery-powered electric vehicles. Spotlight was established on 27 December 2019, following approval from the Chinese authorities and the first stage of construction has already begun. Together with the intention to increase its shareholding in BBA, the BMW Group is significantly expanding its presence in China and under- lining its commitment on that market. Since BMW AG, Daimler AG and AUDI AG acquired the HERE mapping service in 2015, the partners have been working on high-precision dig- italised maps that can be linked to real-time vehicle data. Digitalised maps create the basis for the next generation of location-related servic- es, thereby marking the next key step in the evolution of individual mobili- ty. They also form the basis for developing new assistance systems. As an independent platform, HERE has always remained accessible for the au- tomotive industry as well as other partners. In 2020, Mitsubishi Corpo- ration (MC) and Nippon Telegraph and Telephone Corporation of Japan (NTT) jointly acquired 30 % of the business. As a result, the location data and technology platform now has nine direct and indirect shareholders: Audi, Bosch, the BMW Group, Continental, Intel, MC, Mercedes-Benz, NTT and Pioneer. Toyota Motor Corporation (TMC) As strong, independent companies, the BMW Group and TMC have been collaborating successfully in various fields since 2011, including fuel cell technology. The BMW Group was primarily responsible for developing a joint sports car platform, and series production of these brand-specific vehicles has been ongoing since the end of 2018. IONITY The BMW Group is a founding partner of the IONITY joint venture, the aim of which is to establish a comprehensive, high-performance, high-power charging (HPC) network for electric vehicles. The joint venture represents a vital step towards ensuring that electric mobility also becomes a viable means of transport over long distances, thus establishing it on the mar- ket. All IONITY charging points are publicly accessible, brand-independ- ent and designed in accordance with the European Combined Charging System (CCS) standard. The founding partners (the BMW Group, Daim- ler AG, the Ford Motor Company as well as the Volkswagen Group with Audi and Porsche) all participated in equal measure. In 2019, the Hyundai Motor Group with its Hyundai and Kia brands was accepted as an addition- al shareholder. The joint venture is, however, also open to further partners. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 68 Combined Management Report General Information and Group Profile BMW GROUP PERFORMANCE INDICATORS RELATING TO RESEARCH AND DEVELOPMENT EXPENSES in % Research and development expenses as a percentage of revenues Research and development expenditure ratio 1 Capitalisation rate 2 2020 5.7 6.3 36.6 2019 Change in %-pts. 5.7 6.2 33.2 0.0 0.1 3.4 in € million 2020 2019 Change in % Research and development expenses New expenditure for capitalised development costs Amortisation Research and development expenditure 3 1 Research and development expenditure as a percentage of Group revenues. 2 Capitalised development costs as a percentage of research and development expenditure. 3 Research and development expenditure comprises the sum of research and non-capitalised development cost and capitalised development cost (not including the associated scheduled amortisation). 5,689 2,300 – 1,710 6,279 5,952 2,134 – 1,667 6,419 – 4.4 7.8 2.6 – 2.2 BMW GroupReport 2020 Products and Services 69 PRODUCTS AND SERVICES PROMISED We aim to reduce the CO2 EMISSIONS of our European new vehicle fleet BY HALF between 1995 and 2020. BMW GroupReport 2020 Products and Services 70 DELIVERED Mission accomplished. MINUS 53 %. BMW GroupReport 2020 Products and Services 71 “At the BMW Group, we are creating the digital, emission-free and dynamic driving of the future. As a tech company, we master ʻsheer driving pleasureʼ, today and tomorrow. We are the only ones to combine dynamic performance and quality with safety and security for customers and data.” Frank Weber Member of the Board of Management of BMW AG, Development Pieter Nota Member of the Board of Management of BMW AG, Customer, Brands, Sales “Our ambition: to provide the best premium customer experience in the industry. Premium is also defined in terms of sustainability. That’s why we support our customers in making not only the best, but also the most responsible vehicle choice – includ- ing a seamlessly integrated, convenient charging concept for our electric vehicles.” BMW GroupReport 2020 Products and Services 72 We made the RIGHT DECISIONS early on. WHY ARE THE CO2 EMISSIONS OF THE NEW VEHICLE FLEET IN EUROPE THE BENCHMARK? The EU requirements are among the strictest and most ambitious worldwide. Think of it this way: Once you’ve met Eu- ropean requirements, it’s a lot easier to fulfil those in other markets and regions. Aside from that, Europe is also our biggest sales region. HOW DID THE BMW GROUP MEET THE TARGETS FOR 2020? We made the right decisions – impor- tant decisions – early on: We offer elec- trified vehicles in every segment – while continuing to make our conventional drive trains more efficient. We ultimately over- fulfilled the targets for 2020. And that’s a good thing, because we’re not interested in the goals themselves – it’s about con- tributing to environmental responsibility. CAN YOU GIVE US A GLIMPSE OF THE FUTURE? We are right on track for the targets for 2021, but the goals for 2030 are a whole other dimension. I know that our product portfolio puts us in a very good position. But the conditions also have to be right – and that means significantly expanding charging infrastructure. Further information is available at: report.bmwgroup.com Christian Miedaner is responsible for CO2 strategy during the product use phase. BMW GroupReport 2020 Combined Management Report Products and Services 73 DESIGN AND PRODUCT SAFETY FUTURE-ORIENTED DESIGN BMW Group vehicles combine emotional and func- tional design with the highest of safety standards. Active and passive safety systems ensure greater safety on the road – not only for BMW Group customers, but for all other road users, too. When manufacturing its products, the BMW Group avoids the use of any substances that are hazardous to health. It also informs its customers about all the various safety aspects of its products and enables them to recognise and handle dangerous situations by providing driver safety training. The BMW Group en- sures transparency, informational self-determination and data security when using its customers’ data. The BMW Group is synonymous with future-oriented, emotional vehicle design that unites aesthetics with state- of-the-art technology. It strives to create experiences for its customers through the design of its vehicles. A successful design makes vehicles coveted products that cater to the individual needs of customers the world over. The BMW, MINI, Rolls-Royce and BMW Motorrad brands each have their own independent design language. De- signs created by the BMW Group should not only meet the high design standards of a globally leading premium automotive manufacturer, but make technical innova- tions functional and intuitive to use at the same time. In order to make future mobility trends perceptible at the earliest stage of design, the BMW Group devel- ops various types of prototypes. Concept vehicles, such as the BMW Concept i4, which was first presented in March 2020, are specifically used to communicate in advance how future series-produced vehicles will look. Vision vehicles such as the MINI Vision Urbanaut, which was unveiled at the BMW Group #NEXTGen event in No- vember 2020, provide the public with a glimpse of how the Group’s future mobility concepts could be designed. The globally operating company Designworks is also a subsidiary of the BMW Group and an inspiring studio that works to create thought-provoking design ideas for both the BMW Group and external customers. In its three studios in Los Angeles, Munich and Shanghai, it creates ambitious visions of the future that are meant to shape and improve our world. USING SAFETY TECHNOLOGY TO MINIMISE RISKS The BMW Group not only strives to create an emo- tional connection between products and its customers via its design, it also designs and builds its vehicles to meet the highest safety standards, as it considers the safety of its vehicles an essential part of its product responsibility. By including a raft of active and passive safety measures, the BMW Group is able to reduce the risk of accidents and injuries not only for vehicle occupants, but for other road users, too. Above all, these safety measures include optimised chassis tuning, highly effective braking systems, stable passenger compartments and airbags, but also digital driver assistance systems such as active cruise control, collision warning, lane guidance and emergency braking assistants. BMW GroupReport 2020 Combined Management Report Products and Services 74 REDUCING POLLUTANTS COMPREHENSIVE INFORMATION ON SAFETY ASPECTS DATA PROTECTION IS A KEY TASK Right from the design stage of its vehicles, the BMW Group consciously avoids the use of problematic materials and substances and takes active steps to keep emissions within the passenger compartment to a mini- mum. With this design strategy, the BMW Group seeks to ensure that legal requirements regarding product safety, human health protection and the environment are com- plied with worldwide for each phase of the product life cycle, including development, use, recycling and disposal. In addition, all BMW, MINI and Rolls-Royce brand vehi- cles are equipped with passenger compartment air filters as standard, which filter out pollutants and particles such as dust or pollen from the outside air. In 2020, the BMW Group installed passenger com- partment filters featuring nanofibre filter technology for the first time, which keep certain microbial particles and allergens as well as ultra-fine particulate matter from entering the vehicle’s passenger compartment. Also in 2020, nanofibre filters were installed for the first time in a Rolls-Royce as standard. From 2021, however, the innovative technology will gradually become available for numerous other BMW Group vehicle models. The BMW Group provides customers with compre- hensive information on the correct use of its products and services. Information on health and safety as well as the proper use of its vehicles is provided in printed form in the integrated owner’s manual and is also avail- able electronically via a smartphone app or online. The information is supplemented by notes and additional background information on services, accessories and vehicle components. DRIVER TRAINING TO PROMOTE GREATER ROAD SAFETY The BMW Group offers training for BMW and MINI brand automobiles as well as BMW motorcycles in over 30 countries. In the BMW and MINI Driving Experience, it raises awareness of potentially dangerous situations and thus also contributes to road safety in general. De- spite global restrictions due to the coronavirus pandemic, the Driving Experience trained over 70,000 participants worldwide at various international locations in 2020. The BMW Group views data protection as one of the most important tasks of digitalisation. It takes data pro- tection into account at an early stage in the development of its functions and services in order to ensure transpar- ency, informational self-determination and data security for its customers. In order to maintain this high level of data protection in the long term, the BMW Group’s products and services are always developed according to security-by-design principles and continuously tested for security aspects (cybersecurity) throughout their entire life cycle. The BMW Group’s product responsibility also includes the secure transfer of vehicle data to third parties. For this reason, BMW Group vehicles are not directly connected to the Internet, but communicate directly and exclusively with the BMW ConnectedDrive back-end service via a secure connection in a virtual private network. This precaution minimises the risk of unauthorised third parties gaining access to the vehicle or the driver’s personal data. The point of access to the Internet is controlled via a gateway. The BMW Group considers the provision of vehicle data via a secured back end (extended vehicle approach in accordance with ISO 20078) the best solution for ensuring data security and thus a high level of data protection. BMW GroupReport 2020 Combined Management Report Products and Services In May 2017, the BMW Group introduced BMW and MINI CarData for the secure transmission of data to third parties. CarData is already available to BMW and MINI customers across all European markets. Custom- ers can adjust their privacy settings to suit their own personal needs, either within their vehicles or on the ConnectedDrive portal, thereby retaining their right to informational self-determination. They can decide at any time which data to share with service providers (such as workshops, insurance companies and fleet manag- ers) in order to receive customised service offers. The BMW Group has also been offering this service in the USA since April 2020. Furthermore, the Group works closely with the relevant data protection supervisory authorities to clarify fundamental data protection issues that relate to the increasing connectedness of its vehicles with the environment. For example, as a member of the German Association of the Automotive Industry (VDA) and the European Association of the Automotive Industry (ACEA), the BMW Group supports the principles on data protection they have drawn up. These principles focus on transparency, the informational self-determination of customers and the technical protection of data in their vehicles. 75 ENSURING SAFETY WITH QUALITY MANAGEMENT CONTINUOUS FURTHER DEVELOPMENT OF SAFETY SYSTEMS All BMW Group vehicles are subject to stringent safety tests during development and production, some of which are even stricter than those prescribed by law. The BMW Group’s quality management does not end at the factory gate, but also extends to vehicles that customers are already using. If any deviations from the Group’s strict quality standards are observed in their markets, it systematically follows up on these indications. If neces- sary, the Group informs the relevant authorities without delay and initiates any measures that may be required. The BMW Group take voluntary technical action even if there is no immediate danger. Any vehicles potentially affected are checked, and if a fault is detected the cor- responding components are replaced. If there is a safety risk of any kind, the BMW Group implements technical measures in collaboration with the relevant authorities. For this reason, the Group has established appropriate committees, processes and organisations that are man- aged by the Product Support, Technical Actions and Warranty Costs department. GRI 416-1 By systematically developing and improving its safety systems, the BMW Group is helping to reduce the risk of accidents and injuries for all road users. An important in- dicator of this risk is the European New Car Assessment Programme (Euro NCAP), a scheme for assessing the safety of vehicles in the event of a crash. The results of the most recently assessed vehicles (four top Euro NCAP ratings for the BMW 1 Series, BMW 2 Series Gran Coupé, BMW 3 Series and BMW Z4) once again demonstrate the BMW Group’s premium standards in terms of vehicle safety. In the years to come, the BMW Group will continue working to additionally enhance the safety of its vehicles. Apart from constantly optimising the passive safety of each individual vehicle, the Group is also focusing on improving road safety standards by means of connected and automated driving. This applies, for example, to the BMW iX *, which was unveiled during the year under report and will go into series production in 2021. With its even more efficient sensor technology, the vehicle will be equipped with new and improved automated driving and parking functions and set new standards for the BMW Group. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report Products and Services CARBON EMISSIONS AND POLLUTANTS The fight against climate change is crucial for the future of our society – and thus also for that of the BMW Group. For this reason, it is placing sustaina- bility in the centre of its corporate strategy. In future, the BMW Group intends to be even more systematic in examining not only the economic, but also the ecological and social impact of its corporate decisions. The Group has therefore also committed to the requirements of the Paris Climate Agreement that are relevant to it and set itself the target of establishing a climate-neutral business model across its entire value chain by the year 2050. In 2020, the BMW Group undercut the EU’s manu- facturer-specific fleet carbon emissions limit of 104 g / km by achieving a figure of 99 g / km according to internal calculations. At the same time, it also accomplished the goal it set itself in 2012 of halving the carbon emis- sions generated by its European new vehicle fleet by 2020 compared with 1995. Furthermore, the BMW Group will continue to work successfully on constantly reducing its carbon emissions going forward. The BMW Group aims to provide its customers with the best offers world- wide, also in terms of sustainability. For this reason, the BMW Group’s drivetrain technology is based on two factors – highly efficient combustion engines and electric mobility. 76 NEW TARGETS FOR DECARBONISATION BY 2030 The BMW Group is committed to achieving long- term carbon neutrality by 2050. Guided by this principle, it is taking extensive measures to substantially reduce the carbon and other pollutant emissions generated by its vehicles, as it has done in the past. In the year under report, the BMW Group therefore set itself specific new targets derived from the Science Based Targets Initia- tive (SBTI) in order to further cut its carbon emissions below the level already achieved and is taking a holistic approach to accomplishing this aim. In this context, the Group intends to achieve a mitigation corridor across all the activities for which it is responsible that corresponds to the defined target set out in the 2015 Paris Climate Agreement, i. e. to limit global warming to between 1.5 and 1.75 degrees Celsius. Within the value chain, this includes all three scopes defined under the umbrella of the Science Based Targets Initiative (SBTI). By 2030, the BMW Group therefore intends to reduce the average car- bon emissions generated by its new car fleet in the use phase by 40 % compared to 2019 (Scope 3 downstream). Furthermore, the BMW Group is scrutinising its entire value chain and striving to significantly reduce carbon emissions from the supply chain (Scope 3 upstream), its production processes (Scope 1 and 2) and the entire use phase. These targets have been notified to the SBTI and validated. Recording carbon emissions from Scope 1 to Scope 3 The carbon emissions generated by a given company are record- ed in various categories. The Greenhouse Gas Protocol, a part- nership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), distinguishes between Scope 1, Scope 2 and Scope 3 emissions, based on their various sources. Whereas Scope 1 emissions are generated within a company through the combustion of fossil fuels, Scope 2 refers to the indi- rect emissions caused by the consumption of electricity and heat from externally generated sources of energy. Scope 3 emissions are generated in the upstream and downstream stages of the val- ue chain, both in the supply chain (upstream) and in the subse- quent use of products and services (downstream). FLEET CARBON EMISSIONS FURTHER REDUCED The development of sustainable products and servic- es has long been an integral part of the BMW Group’s business model. The early fleet-wide use of Efficient Dy- namics technologies (since 2007) and the electrification of vehicles (since 2013) are continuously reducing carbon emissions in the long term. These twin factors form the basis for complying with and even undercutting legally prescribed carbon emissions and fuel consumption limits. more than – 40 % drop in carbon emissions generated by the new car fleet in the use phase by 2030 BMW GroupReport 2020 Combined Management Report Products and Services Taking all regulatory requirements ¹ into account, the average carbon emissions generated by the BMW Group’s new car fleet within the EU (including Norway and Iceland) according to the NEDC ² in the year under report amounted to 99 g CO₂ / km ³. The BMW Group therefore reduced its fleet carbon emissions by 28 g CO₂ / km com- pared to the previous year (2019: 127 g CO₂ / km), approx- imately 5 g CO₂ / km below the limit of 104 g CO₂ / km applicable to the BMW Group. Between 1995 and 2020, the Group’s carbon emissions were reduced by around 53 % . This success was achieved through the consistent electrification of the vehicle fleet and the continuous improvement in the efficiency of combustion engines. GRI 302-5, 305-5 Worldwide, the BMW Group reduced its fleet average carbon emissions by 5 % compared to the previous year to 133 g CO₂ / km ² in 2020 (simplified in- ternal BMW Group calculation for its core markets EU, USA, China, Japan and Korea) (2019: 140 g CO₂ / km ). DEVELOPMENT OF CO2 EMISSIONS OF BMW GROUP NEW VEHICLE FLEET IN THE EUROPEAN UNION Base year 1995 = 210 g CO₂/km 230 m k / ² O C g 90 77 (compared to base year 1995) – 53 % GRI 305-3, 305-5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Development of CO2 emissions of BMW Group new vehicle fleet in the EU from 1995 to 2017 (on the basis of the NEDC test cycle). Development of CO2 emissions of BMW Group new vehicle fleet in the EU (on the basis of the NEDC test cycle; provisional value for 2018). Source: the International Council on Clean Transportation (ICCT), 1995–2009; European Environment Agency (EEA), 2010–2019. Development of CO2 emissions of BMW Group new vehicle fleet in the EU from 2017 to 2020 (on the basis of the WLTP test cycle, retroactively calculated as an NEDC value for the purposes of comparability). 2 1 Flexibilities as defined in regulatory requirements: phase-in with 5 g / km, supercredits BEV / PHEV with 7.5 g / km and eco-innovations with 2.4 g / km. 2 Since 2018, all vehicles in the EU must be licensed according to the new WLTP test cycle. However, the EU Commission will not start using WLTP to calculate fleet CO2 emissions until 2021. As a result, WLTP fleet emissions must be retroactively calculated as NEDC values for the purposes of reporting until and in 2020. 3 This is a preliminary internal calculation with a potential tolerance of + / – 0.5 g CO2 / km, as official registra- tion figures have not been provided by all EU states. The EU Commission is not expected to publish official figures until November 2021. BMW GroupReport 2020 Combined Management Report Products and Services In the USA, the average fleet emissions ¹ for the model year (MY) 2020 amounted to 156 g CO₂ / km for passenger cars (MY 2019: 157 g CO₂ / km) and 186 g CO₂ / km for light trucks (MY 2019: 188 g CO₂ / km). Fleet-weighted CO₂ emissions in the USA averaged 167 g CO₂ / km (MY 2019: 167 g CO₂ / km – BMW internal calculation). In China, average carbon emissions ² rose slightly to 151 g CO₂ / km (2019: 144 g CO₂ / km). This is due to lower sales of electrified models in China, while overall sales are increasing. GRI 302-5, 305-5 RANGE OF ELECTRIFIED VEHICLES FURTHER EXPANDED The BMW Group sees wide-ranging opportunities to further reduce fuel consumption and pollutant emis- sions in the electrification of power trains. This point is particularly relevant against the backdrop of global decarbonisation targets, for example in the EU, China or the USA (particularly California), and the sustainability targets the BMW Group has set itself for 2030. For this reason, the BMW Group again expanded its range of electrified vehicles during the 2020 reporting year. By 2030, the Group plans to have delivered at least seven mil- lion electrified vehicles to its customers. Electric Mobility 7 million electrified vehicles delivered by 2030 78 CONVENTIONAL DRIVETRAINS MORE EFFICIENT AND WITH LOWER EMISSIONS The BMW Group continues to work intensively on reducing fuel consumption and carbon emissions in its conventionally powered vehicles. Since 2007, the BMW Group has been implementing its Efficient Dynamics package of technological measures through- out the fleet, comprising various coordinated measures to reduce fuel consumption. In this context, the Group continued to optimise the efficiency of its combustion engines throughout the year under report by deploying recuperation systems and continuous emissions reduc- tion measures. Recuperation systems utilise the energy recovered from the braking process to supply the vehi- cle’s electrical system and generate additional power for the drivetrain. For this reason they are often referred to as mild hybrid vehicles. Electrified Vehicles Since the early 1990s, the BMW Group has managed to significantly reduce the pollutant emissions generated by its vehicles by deploying new technologies and mak- ing improvements to existing ones. In Europe alone, it has reduced the relevant exhaust emissions of the new vehicle fleets for diesel passenger cars in accordance with the threshold values of the standards Euro 1 to Euro 6 from 1992 to 2019 by well over 90 % compared to the level recorded prior to the introduction of the Euro emissions standards. GRI 305-7 The introduction of new models with even lower-emissions drivetrain technologies has made a significant contribution to this result. In the year under report, the BMW Group also converted all its remaining models to the Euro 6d emissions standard. The BMW Group expects modern, highly efficient diesel engines to continue playing an important role. As part of its Efficient Dynamics approach, the BMW Group will therefore continue to work on reducing the consump- tion of conventional drivetrain systems and boosting their efficiency in the foreseeable future. It intends to continue along this route, taking innovative approaches to the combustion engine, aerodynamics and lightweight design. The use of 48-volt technology is another key component in the BMW Group’s efforts to reduce its carbon emissions. Artificial intelligence (AI) can also contribute to cut- ting carbon emissions and vehicle fuel consumption. The BMW Group is conducting research into how AI could make energy management in vehicles adaptive, enabling energy consumption to be modified to suit the needs of the driver and further improve energy efficiency. Nitrogen oxide levels are a crucial factor for the air quality in towns and cities. With this point in mind, since mid-2018 the BMW Group has installed a highly effective combination of an NOx storage catalytic converter (NSC) and an SCR system (SCR: selective catalytic reduction) with urea injection technology (AdBlue) in all BMW diesel models as well as in the larger MINI diesels. As part of its continuous further development strategy, the BMW Group has additionally improved the efficiency of its exhaust gas after-treatment technology by utilising an oxidation catalytic converter in conjunction with two SCR catalytic converters. In 2020, this new technique was launched and rolled out across the Group’s product portfolio together with the revised generation of its diesel engines. 1 Basis: USC (United States Combined). 2 Basis: NEDC (New European Driving Cycle). BMW GroupReport 2020 79 With this approach of taking the entire vehicle life cycle into account, the BMW Group intends to realise its ambition of achieving substantial improvement from one vehicle generation to the next. The Group implements its targets and assesses its progress during the development process based on a carbon footprint in accordance with the ISO 14040 / 44 standard. Electric Mobility Combined Management Report Products and Services With the aim of spreading these innovations for improving air quality as swiftly as possible, the BMW Group offered a scrappage bonus in Germany in 2020. The move was intended to rejuvenate the passenger car fleet and thus contribute quickly and effectively to reducing nitrogen oxide emissions. In 2019 and 2020, there were already first signs of a noticeable reduction in NOx pollution in German cities, partially due to the progressive renewal of the fleets of all automotive man- ufacturers. GRI 416-2 matters agreed therein are valid for every state in the USA – one of the BMW Group’s largest sales markets. The commitments made enhance the Group’s long-term planning security in the face of political change and are in line with increasingly stringent legislation worldwide designed to reduce vehicle emissions. In view of the growing popularity of electric mobility, for example, the BMW Group sees the rapid expansion and technical harmonisation of charging infrastructure as an urgent requirement. In the USA and Europe in particular, the slow pace of infrastructural expansion is still holding back the spread of electric mobility. SUCCESSFUL REDUCTION SURPASSES LEGAL REQUIREMENTS The BMW Group has the clear ambition to meet statu- tory carbon emissions requirements. Within the EU, the Group succeeded in improving on fleet carbon targets during the year under report. With respect to fleet car- bon limits in other regulated markets, the BMW Group is also explicitly aiming to comply with the limits and keep its emissions as far below them as possible, which it again succeeded in doing in the year under report. The BMW Group supports the development of har- monised national regulations, also on an international basis to the extent possible. Comparable regulations in major markets create reliable, predictable framework conditions that make a key contribution to combating climate change and improving air quality. In view of its commitment to complying with the climate goals enshrined in the Paris Agreement, during the year under report the BMW Group entered into a voluntary agreement with the US State of California to reduce fleet emissions over and above national requirements. The MANAGEMENT OVER THE ENTIRE LIFE CYCLE In order to meet market-specific fleet requirements and its own even more ambitious decarbonisation tar- gets, the BMW Group is taking an holistic approach to reducing emissions throughout the entire life cycle of its vehicles. This approach is particularly relevant, as – de- spite the expansion of electric mobility having an overall positive impact on carbon emissions in the use phase – emissions levels in the supply chain are increasing due to the use of more carbon-intensive components, especially those installed in high-voltage battery systems. For this reason, right from the product development stage of new vehicle projects, the BMW Group has defined specific targets for reducing carbon emissions across the entire life cycle. The strategy applies equally to the vehicle de- velopment, the supply chain, production, the use phase, and finally recycling at the end-of-life phase. BMW GroupReport 2020 Combined Management Report Products and Services 80 ELECTRIC MOBILITY AMBITIOUS TARGETS FOR EXPANDING ELECTRIC MOBILITY PRODUCT OFFERING EXPANDED AND SALES VOLUME INCREASED Electric mobility is one of the key topics of the future when it comes to making road travel sustainable and a more pleasant experience. In recent years, the BMW Group has significantly expanded its range of electrified vehicles and related services. It therefore sees itself as one of the leading providers of premium electric mobility, measured on the basis of its cumulative sales volume figures between 2013 and 2020 and in light of the holistic approach it is taking. The BMW Group’s electrified vehicles combine the advantages of sustainable mobility with dynamic drive- train behaviour. Fully electric battery-powered models (BEVs) generate zero local emissions and can significantly reduce traffic noise levels in towns and cities. The BMW Group is pursuing the goal of substantially further decarbonising its vehicles and thereby achieving a worldwide reduction in carbon emissions in the use phase (Scope 3 downstream in accordance with SBTI Carbon Emissions and Pollutants and Paris Climate Agreement targets. A key part of its product strategy is therefore to systematically continue electrifying its model range. The BMW Group has set itself ambitious targets: by 2025, the proportion of electrified vehicles in its total deliveries is to rise to at least 25 %. By 2030, the BMW Group plans to have delivered at least seven million electrified vehicles ¹. To ensure that it achieves its sales volume targets for electric and plug-in hybrid vehicles, the BMW Group plans to more than double its sales of electrified vehi- cles by the end of 2021 compared with 2019 figures (2019: 146,158 ² units). Based on its existing plans, the BMW Group will have 25 electrified models on the road by 2023. The BMW Group is consciously focusing on battery electric vehicles (BEV) and plug-in hybrid technology (PHEV), enabling customers to select the form of drive- train that best suits their respective mobility needs. In order to serve regionally varying customer requirements, the BMW Group assembles a variety of drivetrain tech- nologies on the same production line. During the year under report, the BMW Group launched further models with hybrid drivetrains: the BMW X1 xDrive25e ³, X2 xDrive25e ³, X3 xDrive 30e ³, 330e Touring ³, 330e xDrive Sedan ³, 330e xDrive Tour- ing ³, 530e Sedan ³, 530e Touring ³, 530e xDrive Sedan ³, 530e xDrive Touring ³ and 545e xDrive Sedan ³. These were joined by two additional all-electric models, the MINI Cooper SE ³ and the BMW iX3 ³, which has been available in Europe since the end of January 2021. The BMW iX3 ³ is already equipped with the technology of the fifth, and thus latest, generation of BMW Group battery cells. Glossary. 1 See 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. 3 See Fuel Consumption and CO2 Emissions Information. Comparison of Forecast with ≥ 25 %  proportion of electrified vehicles in total deliveries by 2025 BMW GroupReport 2020 Combined Management Report Products and Services In November 2020, the Group presented the BMW iX ¹, featuring new electric drivetrain technology, substantially enhanced connectivity and innovative in- terior design. The BMW iX ¹ also features a range of over 600 km (WLTP) and shorter charging times. The vehicle can be charged for a range of over 120 km in roughly ten minutes. In 2020, the BMW Group delivered 192,662 electri- fied vehicles (2019: 146,158 units ²). Further information is available in the “Automotive segment” section of the Business Report. Fuel Consumption and CO2 Emissions Information. 1 See 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. Comparison of Forecast with 3 The range has already been determined in accordance with the new WLTP test cycle (Worldwide harmo- nized Light vehicles Test Procedure) and recalculated to NEDC (New European Driving Cycle) for compara- bility. The actual range depends on various factors, including personal driving style, route characteristics, the outside temperature, heating, air conditioning, preheating and precooling. Provisional figure. 81 RANGE INCREASED TO MEET CUSTOMER NEEDS FURTHER INVESTMENTS IN ELECTRIFICATION The BMW Group invests on an ongoing basis in the planning and development of new vehicle models. The figure of 25 electrified models previous targeted to be on the roads by 2025 has now been brought forward to 2023. Around half of the 25 models will be offered as all-electric versions. The BMW Group also intends to offer its high-volume models as purely battery-powered versions. From today’s perspective, the European Union’s target of attaining climate neutrality by 2050, the interim targets discussed in the context of the Green Deal and the similarly ambitious climate policy targets of other countries can only be achieved with a variety of parallel technologies if customers are to continue being offered a range of mobility options that meet their specific and differing needs going forward. Even today, from a global viewpoint there are driving profiles that cannot yet be covered by an all-electric vehicle due to physical or technical restrictions or insufficient access to a viable charging infrastructure. To enable customers to cover as much of their daily driving as possible emissions-free, the BMW Group is sys- tematically increasing the electric range of its plug-in hy- brids (PHEV) and battery-powered electric vehicles (BEV) by introducing new technologies. Hence, for PHEVs, the Group has increased the range of the BMW X5 PHEV ¹ from 31 km (2015: NEDC data) to 80 km ³, the BMW 530e PHEV ¹ from 45 km (2017: NEDC data) to 60 km ³ and the BMW 330e PHEV ¹ from 40 km (2016: NEDC data) to 60 km ³. In the BEV segment, the range of the BMW i3 BEV ¹ increased from 300 km (2016: NEDC data) to 359 km ³. To further increase the range of its electrified vehicles, the BMW Group is improving both the energy density and the efficiency of its battery cells. For example, the high-voltage battery in the BMW iX3 ¹ has a 20 % higher energy density and the power density of the electric motor has also been increased by 30 %. As a matter of principle, the BMW Group takes a differentiated view to increasing the electric range and does not necessarily consider it expedient to aim for a maximum range for all electrified vehicles, and is rather of the opinion that it makes more sense to offer customers tailor-made solutions by producing a fleet of vehicles with varying ranges. Resource use and resource efficiency – advantages that also benefit the customer. BMW GroupReport 2020 Combined Management Report Products and Services 82 PHEVs and highly efficient internal combustion engines are therefore a more likely choice in this envi- ronment. For these reasons, the BMW X3 * is the first model series to be available in two variants, firstly with a combustion engine and secondly as a plug-in hybrid version, thanks to the BMW Group’s scalable, modular construction system. The BMW iX3 * is also available with its all-electric drivetrain. Quite apart from battery-powered electric drivetrain systems, the BMW Group also continues to see the poten- tial of fuel cells, a technology embedded in the hydrogen strategy of various countries. The Group is planning to produce a small series of the BMW i Hydrogen NEXT from 2022. Moreover, as an associated partner of H2 Mobility Deutschland GmbH, the BMW Group is in- terested in establishing the infrastructure required for hydrogen-powered vehicles. ACHIEVING SUSTAINABILITY OVER THE ENTIRE LIFE CYCLE The BMW Group considers both decarbonisation targets and market-specific fleet requirements right from the product development stage. In doing so, it defines specific targets that ensure well-balanced optimisation over the entire life cycle. and other pollutant emissions as well as the use of critical materials over the entire life cycle of its vehicles right from the very beginning. With the fifth generation of BMW eDrive, the Group reached an important milestone during the year under report. A special feature of the electric motor, which is being installed in the BMW iX3 * for the first time (eDrive Gen5), has been designed so that it no longer requires the use of rare earth elements. For the fifth generation of its high-voltage storage system, the BMW Group obtains any critical raw materials it re- quires from sources outside the known conflict regions. Cobalt that is bought in directly by BMW Group and made available to suppliers is sourced from Morocco and Australia. The lithium used is also from Australia, where it is extracted by means of the so-called hard rock mining process. In addition, the BMW Group has successfully reduced the amount of cobalt required per kWh by two- thirds through the further chemical development of its battery cells. Purchasing and Supplier Network The use of renewable energy in production process- es – for example in the manufacture of energy-intensive materials such as carbon fibre reinforced plastic – or the choice of green electricity in the use phase – also help reduce the carbon footprint of the BMW Group’s vehicles. Further information on how efficiently and therefore eco- nomically and sparingly the BMW Group uses resources in its production processes is provided in the section Resource Consumption and Resource Efficiency. With its project i, the BMW Group was among the first manufacturers to pursue the aim of reducing carbon The BMW Group has entered into a contractual agree- ment with its battery cell manufacturers to ensure that they only use green electricity when producing the fifth generation of battery cells. In a joint technology consor- tium with battery manufacturer Northvolt, the Group also plans to configure the value chain for battery cells in Europe with sustainability as its top priority. Other approaches to handling resources in a respon- sible, sustainable manner include the reuse of batteries, such as in stationary storage systems with the aim of improving the use of renewable energy and promoting recycling. In collaboration with the recycling specialist Duesenfeld, for example, the BMW Group has developed the prototype of a process that enables 96 % of the mate- rial from battery cells to be recovered for recycling. Fur- thermore, the option exists for all customers whose ve- hicle contains a high-voltage battery for the BMW Group to take the battery back free of charge. This also applies to regions where there is no legal obligation to do so. The BMW Group manages the implementation of its targets and assesses progress in vehicle development via its Life Cycle Assessment in accordance with the ISO 14040 / 44 standard. The Group utilises these assessments to record the environmental impacts occurring over the life cycle of a vehicle right from the development stage and make comparisons with predecessor models. Howev- er, the BMW Group’s approach goes one step further: it breaks down the targets by product and then implements the appropriate measures. These include, for example, the use of green electricity for energy-intensive processes in the supply chain or in production as well as the use of recycled materials such as aluminium or plastics instead of deploying primary resources. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report Products and Services The BMW Group aims to ensure that electric and electrified vehicles make an effective contribution to climate protection not only in the use phase, but also in their overall footprint, including the supply chain. As an example, the environmental report of the BMW iX3 * indicates that the greenhouse gas potential values of an all-electric vehicle are around 30 % lower than those of a conventional reference vehicle with a diesel drivetrain when the calculation is based on standard consumption and the European electricity mix. Furthermore, when the electricity used for charging is generated from re- newable energy sources, the emissions values are around 60 % lower. Competence centre for battery cells In 2019, the BMW Group began pooling its wealth of experi- ence and comprehensive knowledge of battery cell technology in a new competence centre based in Munich. With this strategy, the Group is pursuing the twin aims of further improving its bat- tery cell technology and fully penetrating production processes. Based on the battery technology currently in use, the BMW Group intends to substantially increase the potential range of its electri- fied vehicles by 2030 by continuing to develop its battery cells, modules and systems. Looking to the future, the focus will be even more on cutting battery system costs in order to make elec- tric mobility more profitable. The competence centre replicates the entire value chain of bat- tery cell technology, from research and development to the struc- ture and the design of the battery cell to the production of the first prototypes. It takes the complete life cycle of a battery cell into ac- count, from purchasing the raw materials to recycling. Particularly in view of the high-voltage batteries needed to power electrified ve- hicles, which can entail the use of critical raw materials, the circu- lar economy has a decisive role to play. Production, Purchasing and Supplier Network 83 EXPANDING THE CHARGING INFRASTRUCTURE AND ENABLING FASTER CHARGING A comprehensive charging infrastructure is a prereq- uisite for the rapid, widespread deployment of electric mobility. In order to promote this project, between 2015 and 2020 the BMW Group committed itself to improving the charging infrastructure in a total of over 50 projects and has initiated the installation of some 15,000 opera- tional charging points. The BMW Group plans to install a total of 4,100 charging points at BMW Group properties in Germany by the end of 2021. Half of these charging points will be made accessible for public use. Together with other car manufacturers, charging station providers, charging service providers and energy suppliers, the BMW Group is working on simplifying not only access to charging stations, but also the charging process itself. At European level, in close collaboration with the IONITY joint venture, the BMW Group is in the process of building a high-performance fast-charging network com- prising some 400 charging stations along major transport routes by 2021. Fast-charging stations make charging up to seven times faster than standard 50 kW stations. Originally planned for completion by 2020, due to the coronavirus pandemic and the lack of approvals, the BMW Group and its partners were compelled to postpone the construction of certain stations until 2021. To date, 325 of the 400 planned IONITY fast-charging stations have been installed and a further 44 are currently under construction. At powerful and increasingly widespread DC fast-charging points with outputs of at least 150 kW, the BMW iX3 * can be charged to achieve a range of over 100 km (WLTP) in around ten minutes. The BMW Group intends to offer electric mobility to both private customers and companies operating entire fleets and is additionally expanding the BMW Charging product and service portfolio for trendsetting charging solutions at home, on the road and at the workplace. Charging infrastructure for both private and commercial purposes is a key prerequisite for the further expansion of electric mobility. The BMW Group welcomes the sup- port provided by government premiums, as charging options both at home and at the workplace make a key contribution to the overall infrastructure from the point of view of customers. GREEN ELECTRICITY FOR E-MOBILITY During the year under report, the BMW Group continued to pursue and expand its approaches to the holistic ecological optimisation of electric mobility both at home and on the road. In addition to BMW Charging and MINI Charging, the Group already offers electricity from renewable sources as well as attractive solar power packages for homes in both Germany and Austria. As part of its strategic investment in the IONITY joint ven- ture, the BMW Group is preparing to broaden its range of services to enter other markets as well as the field of public charging. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report Products and Services 84 IMPROVING POLITICAL CONDITIONS MOBILITY PATTERNS MAKING URBAN MOBILITY SUSTAINABLE WITH SERVICES In the BMW Group’s view, there is still a need for political support for electric mobility in many countries and cities. In the EU, for example, market research points to the close correlation between the density of charging infrastructure and the sale of electrified vehicles. This correlation applies not only at member state level, but also in a regional comparison. The BMW Group is therefore seeking dialogue with policymakers to call for measures to be taken to improve consistency on both the supply and the demand sides. In concrete terms, the aim is to improve framework conditions with the aim of stimulating demand for electrified vehicles not only nationally, but also at local level. The focus here is on increasing the number of public charging points and offering usage incentives in everyday life, such as park- ing spaces reserved for electric vehicles or discounts on parking fees. In Germany, for example, only a few cities have so far taken advantage of the funding opportunities offered by the Electric Mobility Act. To advocate for improved conditions, the BMW Group is involved, for example, in the National Platform for the Future of Mobility (NPM), in the European initiative EIT Urban Mobility and within the framework of the World Economic Forum. Furthermore, the BMW Group is in dialogue with think tanks such as Agora Verkehrswende and is a member of the International Consultative Com- mittee of China EV 100 as well as at VELOZ, a non-profit organisation dedicated to promoting electric mobility in the US state of California. The BMW Group wants to make mobility more sus- tainable and more convenient to use. In recent years, numerous urban mobility offers have been developed and introduced in cooperation with selected towns and cities. The BMW Group therefore sees its 2020 target of providing sustainable support for changing mobility behaviour by offering integrated mobility services in selected metropolitan regions as having been met. Moreover, the Group continues to work together with its subsidiaries and in dialogue with the respective cities to find solutions to the increasing density of road traffic and the corresponding rise in noise levels, air pollution and land use. The BMW Group is also meeting these challenges by developing connected vehicles. In view of the growing trend towards vehicle electrification, the Group is therefore making a significant contribution in particular to providing eco-friendlier modes of transport as well as promoting the better use of space in urban areas. The BMW Group is currently working together with three German cities to improve the traffic situation and explore new mobility solutions. The New Mobility Berlin project aims to improve the quality of life within the city. For this reason, the BMW Group is develop- ing tailor-made multimodal solutions, i. e. approaches that incorporate the entire range of transport modes. In selected districts of the city, via its subsidiaries, the BMW Group offers shared fleets of rental cars and e-scooters as an alternative to privately used vehicles. The strategy is intended to encourage better use of the road space occupied by rarely used private vehicles for other purposes going forward. At the same time, the BMW Group has reached agreements with the cities of Munich and Hamburg, where it has carried out the first pilot projects for making city centres more pleasant to live in. Specific examples of the development of new, sustainable mobility options in- clude the City2Share research project, which focuses on measures to reduce traffic in project districts in Munich and Hamburg, and the “umparken Schwabing-West” pro- ject, in which the BMW Group is working to transform public space and enable it to be used more appropriately by offering mobility packages for local residents. The BMW Group is also involved in various urban platforms via which municipalities exchange information and collaborate on projects, including the Urban Mobility Platform in Germany and the international EIT Urban Mobility Platform of the European Institute of Innovation and Technology. BMW GroupReport 2020 Combined Management Report Products and Services 85 Via its subsidiaries, the BMW Group promotes innovative service offerings in the fields of car sharing, driving services, parking and vehicle charging as well as multimodal transport. In 2019, the BMW Group there- fore merged its own mobility services in a joint venture with those of Daimler Mobility Services GmbH to create the YOUR NOW service. The common goal of the two companies is to expand the use of on-demand mobility and offer new solutions for cities and municipalities looking to make road use more efficient and sustaina- ble. In this context, the market development and the political-regulatory framework conditions in the cities are continuously being examined and the range of services further developed in collaboration with strategic partners. The BMW Group has expanded its car-sharing service offering (SHARE NOW) to include a long-term rental of up to 30 days. It also continued to develop FREE NOW into a multimodal mobility platform by adding e-bikes and e-scooters. In 2020, FREE NOW had 46 million registered customers and offers ride services in 17 countries and 153 cities. In the year under report, around 2.9 million customers used the SHARE NOW car-sharing services, which are available in 16 cities and eight countries. The car-sharing fleet currently compris- es around 9,500 vehicles, almost one-quarter of which are electrically powered. In 2020, the number of trips decreased due to the coronavirus pandemic. The CHARGE NOW vehicle charging service cur- rently provides access to around 246,000 public charging points operated by various providers in 32 countries. In addition to its CHARGE NOW services, the BMW Group is working with partners in other markets to provide cus- tomers with broad access to charging points. The PARK NOW digital parking service enabled around 45 million customers in around 1,200 cities to pay more quickly and easily for parking spaces on a contactless basis. However, PARK NOW’s business performance was also impacted by the coronavirus pandemic in 2020. The BMW Group and its subsidiaries are working continuously on intelligently interconnecting vehicles, infrastructure and mobility services. The aim here is to make better use of the limited parking space available and reduce traffic congestion. The BMW Group is fully committed to complying with statutory limits for air quality, noise levels and carbon emissions as well as to restoring the quality of life for the residents of urban are- as. For these reasons, the BMW Group intends to further intensify its dialogue with towns and cities and make an active contribution to the discussion on more sustainable mobility options as well as tailored traffic management measures. The Group also intends to transfer the results achieved in individual cities to other areas and adapt them on an international basis. FURTHER DEVELOPING AUTOMATED DRIVING Automated functions and digitally connected vehicles can help reduce traffic congestion, minimise the risk of accidents and cut emissions levels. These technologies are therefore making a direct contribution to improving the quality of life in cities, and electric mobility in particular is becoming more and more popular at the same time. The latest BMW models are equipped with state-of-the-art driver assistance systems. In 2021, the BMW Group is taking automated driving a decisive step further with the development of the BMW iX*. It will be the first BMW Group vehicle to offer both automated driving and parking functions via a new modular tech- nology system. The BMW Group sees considerable po- tential in automated driving and will continue to develop this field intensively over the next few years. Employee mobility As the largest single employer in the Munich metropolitan region, the BMW Group has a special role to play in its hometown location and the surrounding urban areas by actively helping to reduce en- vironmental pollution. The Group is planning to have one of the largest company charging networks in place by mid-2021, there- by helping to increase the popularity of electric mobility and re- duce carbon dioxide as well as other pollutant emissions. The BMW Group provides incentives for its employees to use public transport, including benefits such as a discounted month- ly ticket within the Munich city area. Around 14,000 employees have chosen this option. The Group also operates a long-estab- lished shuttle bus service between its locations. It also provides its staff with rental bicycles and scooters for commuting. Last but not least, as a good example, with its BMW LeaseRad offer, the Group is actively supporting the growing number of employees who choose to ride to work by bicycle and also encourages travel- ling by bicycle and scooter in general. * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 Combined Management Report Products and Services The BMW Group is also leveraging vehicle con- nectivity with its new eDrive Zones technology, which automatically switches plug-in hybrids to fully electric driving mode when entering an environmental zone. The innovation makes it easier for customers to drive emissions-free to the greatest extent possible. The Group has already introduced this function in over 80 European cities. The safety of its automated systems is a top priority for the BMW Group. For that reason, in 2019 it partnered with 11 leading companies in the field of automated driving to produce a Safety First for Automated Driving (SaFAD) white paper that highlights the importance of safety by design in the development of an industry standard for automated driving. The BMW Group sees this white paper as an important step towards defining industry-wide standards from the testing stage to the approval of highly and fully automated driving functions. Since 2018, BMW assistance systems have been utilising artificial intelligence to anticipate typically dan- gerous situations such as the swerving of other vehicles in order to react in good time. The BMW Group can further improve the performance of artificial intelligence in this field by analysing anonymised data taken from real-life activities. Therefore, as a founding member of the European Gaia-X project, it is committed to devel- oping standards for organising data and cloud-based measures with the aim of making traffic management more efficient. In order to incorporate highly mature new technolo- gies in series production and further raise its level of ex- pertise in the field of automated driving, the BMW Group is building a new development and testing ground in the 86 Czech Republic, which is scheduled for completion in 2022. Complex everyday automated driving conditions can then be tested at the new facility in a realistic but controlled environment. independently which of their vehicle data are transmitted to other market participants for a specific purpose. The BMW Group has also been offering this service in the USA since June 2020. Design and Product Safety PREVENTIVELY PROTECTING CUSTOMER DATA IDENTIFYING POTENTIAL FOR SUSTAINABLE MOBILITY AT AN EARLY STAGE The protection of data and information within the BMW Group is based on the relevant laws and standards, particularly in accordance with the EU General Data Pro- tection Regulation and the ISO / IEC 27001 international security standard. The personal data of customers is only collected, processed or utilised to the extent legally permitted and with the consent of the person in ques- tion. Any complaints can be reported to the Customer Interaction Centre, the Data Protection Officer or via the SpeakUP Line and will be dealt with promptly. In order to protect its digital systems from tampering, the BMW Group systematically searches for possible weak points with a view to closing any potential gaps in good time before approving the respective component. The Group continuously translates any new insights into binding standards. Clear standards regarding data and information protection also apply to any collaborations and partner relationships. With BMW CarData, the BMW Group introduced a secure, data-protection-compliant and transparent service for the non-discriminatory sharing of vehicle data, initially in Germany in 2017 and since 2018 across Europe. BMW CarData provides BMW Group customers with complete data sovereignty. Customers can decide The BMW Group has combined the topics of sustain- ability and mobility in its corporate strategy. It analyses the opportunities and challenges arising from changes in mobility demand that result from new types of mo- bility on offer or regulatory framework conditions. The BMW Group then develops premises for its contribution to sustainable mobility on this basis. In corporate depart- ments for both strategy and communication, the Group has established dedicated teams in a global network and provided them with funding to jointly define sustainabil- ity goals and monitor the extent to which they are being achieved. The BMW Group views developments in its main markets in a differentiated manner and engages in collaborative research projects in order to understand the changes, impacts and needs of urban mobility behaviour worldwide at an early stage. The Group is also in regular dialogue with its international stakeholders. One of the aims of these established events is to gain a better un- derstanding of people’s mobility needs worldwide and develop new products and services accordingly. Dialogue with Stakeholders BMW GroupReport 2020 Production, Purchasing and Supplier Network 87 PRODUCTION, PURCHASING AND SUPPLIER NETWORK PROMISED We aim to reduce CO2 EMISSIONS per vehicle produced. BMW GroupReport 2020 Production, Purchasing and Supplier Network 88 DELIVERED Since 2020, the electricity for all BMW Group plants has been sourced from 100 % RENEWABLE ENERGIES. BMW GroupReport 2020 Production, Purchasing and Supplier Network 89 “Our expertise in integrating new technologies and products into our production system is unique worldwide. Through innovation and digitalisation, we are setting new benchmarks in terms of efficiency and sustainability. This leads into a new era of automotive production: The next level of our BMW Group pro- duction system will be lean, green and digital.” Dr.-Ing. Andreas Wendt Member of the Board of Management of BMW AG, Purchasing and Supplier Network “A company is much more than just the sum of its individual employees. It is about sharing the same goals, working together as partners and taking responsi- bility beyond one’s own area. This applies to us at the BMW Group, as well as in cooperation with our suppliers.” Dr. Milan Nedeljković Member of the Board of Management of BMW AG, Production BMW GroupReport 2020 Production, Purchasing and Supplier Network 90 We know where TECHNOLOGY can still leverage POTENTIAL. That’s why I’m OPTIMISTIC we can reach the high goals we set ourselves. MR WITSCHNIG, ENVIRON- MENTAL PROTECTION IN PRODUCTION. WHAT DOES THAT MEAN EXACTLY? Our goal is clean production. That means minimising our environmental impact in a targeted manner – with regard to water, waste, energy, solvents, etc. We have achieved a great deal in recent years – for instance, reducing the amount of waste by 80 %. And all BMW Group plants worldwide have obtained their electricity from renewable energies since 2020. THE GOAL IS TO REDUCE CO2 EMISSIONS IN PRO- DUCTION BY ANOTHER 80 % BY 2030. HOW WILL YOU DO THAT? We have already achieved a great deal when it comes to energy efficiency and sourcing green power. And we know where technology can still leverage potential. Our next big topic will be gas consumption. SUPPLY CHAIN CO2 EMIS- SIONS ARE ALSO MEANT TO BE REDUCED BY 2030. MS PEREZ SZMAK, WHY BY ONLY 20 %? Without corrective measures, ex- panding electromobility would increase CO₂ emissions in the supplier network by at least a third. We don’t just want to stop this increase; we want to reverse it. So, actually, a reduction of at least 20 % is a very ambitious goal. Renewable energies will play a big part in this. A second topic is the reuse of materials – in other words, a circular economy. The best part is: Our suppliers are fully on board with this. Further information is available at: report.bmwgroup.com Jury Witschnig is responsible for environmental protection in production. Patricia Perez Szmak heads the project dedicated to sustainability in the supply chain. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network 91 The Group’s Dingolfing plant has assumed a lead- ing role as a competence centre for e-drive systems in the production of electric drivetrain components. It produces battery modules, high-voltage batteries and fifth-generation electric motors for the BMW Group’s electrified vehicles. E-motors are also manufactured at the Landshut plant. Production facilities for battery components and high-voltage batteries are also being established at the Group’s Leipzig and Regensburg sites. Currently, high-voltage batteries are manufactured at three BMW Group plants, i. e. Dingolfing (Germany), Spartanburg (USA) and Shenyang (China). In Thailand, the BMW Group collaborates closely with a partner that manufactures high-voltage batteries for electrified vehicles that are produced locally. By 2024, the produc- tion of internal combustion engines in Europe will be concentrated at BMW Group locations in Steyr (Austria) and Hams Hall (UK). PRODUCTION NETWORK SYSTEMATIC TRANSFORMATION TOWARDS ELECTRIC MOBILITY The BMW Group’s production system is efficient and flexible. It provides customers with a large number of customisation options when choosing their own vehicle. Moreover, during the reporting period the BMW Group’s global production system once again demonstrated its ability to respond to highly volatile market developments, even under the demanding conditions of the 2020 pan- demic year. The production network leverages innovative technol- ogies from the fields of digitalisation and Industry 4.0, including applications from the worlds of virtual reality, artificial intelligence, smart logistics and 3D printing. 2022 every production plant in Germany will be manufacturing at least one fully electric model The BMW Group continues to accelerate towards electric mobility and is bolstering its international production network for the increased manufacturing of electrified vehicles. By the end of 2022, every production plant in Germany should have the capacity to produce at least one fully electric vehicle model. The BMW Group’s production system is capable of manufacturing both con- ventional internal combustion and electrically powered vehicles on a single line, enabling it to respond flexibly to changing customer requirements for various drivetrain systems. In 2020, the Group simultaneously manufac- tured electrified models at 13 locations in its global pro- duction network. By the middle of the current decade it will be deploying a new cluster architecture geared to fully electric drivetrains. Initially, the technology will be launched at the future Debrecen plant in Hungary and then transferred to the global production network in a step-by-step process. Electrification is also becoming increasingly impor- tant in terms of drivetrain production. In the year under report, the BMW Group announced the construction of a pilot plant for the near-series production of battery cell prototypes. The aim is to further optimise the produc- tion of battery cells in terms of quality, performance and costs. The Battery Cell Competence Centre in Munich already covers the entire value chain in terms of battery cell technology – from research and development to the structure and design of the battery cell as well as its manufacturability. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network PRODUCTION SITES IN KEY MARKETS Locations BMW GROUP PLANTS The BMW Group’s production network comprises 31 locations in 15 countries. The Group aims to strike a balance between production and deliveries in the various regions of the world. 20 of the 31 sites are BMW Group plants. Three sites belong to the BMW Brilliance Au- tomotive joint venture in Shenyang (China), which is currently being further enlarged. Eight production sites are operated by partners or contract manufacturers. The same standards of quality, safety and sustainability ap- ply at all locations within the BMW Group’s production network worldwide. Araquari Berlin Chennai Dingolfing Eisenach Hams Hall Landshut Leipzig Manaus Munich Oxford Rayong Regensburg Rosslyn San Luis Potosí Spartanburg Steyr Swindon Wackersdorf 92 Products BMW 3 Series, BMW X1, BMW X3, BMW X4, BMW X5 BMW motorcycles, car brake discs BMW 2 Series, BMW 3 Series, BMW 5 Series, BMW 6 Series, BMW 7 Series BMW X1, BMW X3, BMW X4, BMW X5, BMW X7, MINI Countryman BMW 3 Series, BMW 4 Series, BMW 5 Series, BMW 6 Series, BMW 7 Series, BMW 8 Series, BMW M Chassis and drivetrain components, e-motors, high-voltage batteries, battery components Rolls-Royce bodywork, pressed parts Country Brazil Germany India Germany Germany Toolmaking, vehicle components, aluminium tanks for BMW Motorrad United Kingdom Petrol engines, core engine parts Germany Germany Brazil Germany United Kingdom Thailand Germany South Africa Mexico USA Austria United Kingdom Germany Vehicle and engine components, e-motors and special-purpose motors BMW 1 Series, BMW 2 Series, BMW i, BMW M Motorcycles BMW 3 Series, BMW 4 Series, BMW M Petrol and diesel engines, high-performance engines for M models Core engine parts MINI, MINI Clubman, MINI Cooper SE * BMW 2 Series, BMW 3 Series, BMW 5 Series, BMW 7 Series BMW X1, BMW X3, BMW X5, BMW X7 Motorcycles BMW 1 Series, BMW 2 Series, BMW 4 Series BMW X1, BMW X2, BMW M BMW X3 BMW 3 Series BMW X3, BMW X4, BMW X5, BMW X6, BMW X7, BMW M, High-voltage batteries Petrol and diesel engines Core engine parts High-performance engines for M models Pressed parts and bodywork components Distribution centre for parts and components Cockpit assembly Processing of carbon fibre components Rolls-Royce Manufacturing Plant Goodwood United Kingdom Rolls-Royce Phantom , Ghost, Wraith, Dawn, Cullinan* * See Fuel Consumption and CO2 Emissions Information. BMW GroupReport 2020 93 Products BMW 5 Series BMW X3 BMW iX3 * BMW 1 Series, BMW 2 Series, BMW 3 Series BMW X1, BMW X2 Petrol engines, high-voltage batteries, battery components, production of core engine parts Combined Management Report Production, Purchasing and Supplier Network Locations JOINT VENTURE BMW BRILLIANCE AUTOMOTIVE HOLDINGS LTD. Dadong (Shenyang) Tiexi (Shenyang) Tiexi (Shenyang) * See Fuel Consumption and CO2 Emissions Information. Country China China China The BMW Group’s four automotive partner plants in Jakarta (Indonesia), Cairo (Egypt), Kaliningrad (Russia) and Kulim (Malaysia) primarily serve their respective regional markets and produce BMW and MINI brand models. The BMW Group also awards contracts to external partners for the production of specific types of vehicle as well as motorcycles. During the period under report, Magna Steyr Fahrzeugtechnik produced the BMW 5 Se- ries Sedan and the BMW Z4 in Graz (Austria). VDL Nedcar manufactured the MINI Convertible and MINI Countryman models as well as the BMW X1 at its produc- tion plant in Born (the Netherlands). In addition, BMW motorcycles are produced at the TVS Motor Company in Hosur (India) as well as at the Loncin Motor Company in Chongqing (China). BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network 94 HIGH PRODUCTION VOLUME DESPITE PANDEMIC VEHICLE PRODUCTION OF THE BMW GROUP BY PLANT The coronavirus pandemic caused demand on in- ternational automotive markets to fall, in some cases substantially, especially in the first six months of the year. Production volumes were adjusted accordingly and, at 2,255,637 ¹ BMW, MINI and Rolls-Royce brand auto- mobiles, were below the level recorded one year earlier (2019: 2,564,025 ¹ units; – 12.0 %). The figure comprised 1,980,740 ¹ BMW (2019: 2,205,841 ¹ units; – 10.2 %), 271,121 MINI (2019: 352,729 units; – 23.1 %) and 3,776 Rolls-Royce brand vehicles (2019: 5,455 units; – 30.8 %). 1 Includes vehicles produced by the BMW Brilliance Automotive Ltd., Shenyang joint venture (2020: 602,935 units; 2019: 536,509 units). 2 Joint Venture BMW Brilliance Automotive Ltd., Shenyang. 3 Contract production. in units Spartanburg Dingolfing Regensburg Leipzig Oxford Munich Rosslyn Rayong Chennai Araquari Goodwood San Luis Potosí Tiexi (BBA) 2 Dadong (BBA) 2 Born (VDL Nedcar) 3 Graz (Magna Steyr) 3 Partner plants Total 2020 2019 Change in % 361,365 231,970 199,991 200,968 175,984 143,758 50,760 25,752 6,228 8,400 3,776 56,081 311,137 291,798 125,666 35,747 26,256 411,620 284,907 255,804 230,284 222,340 221,077 69,463 23,700 8,976 8,208 5,455 25,538 250,241 286,268 174,097 52,231 33,816 2,255,637 2,564,025 – 12.2 % – 18.6 % – 21.8 % – 12.7 % – 20.8 % – 35.0 % – 26.9 % 8.7 % – 30.6 % 2.3 % – 30.8 % 119.6 % 24.3 % 1.9 % – 27.8 % – 31.6 % – 22.4 % – 12.0 % BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network RESOURCE CONSUMPTION AND RESOURCE EFFICIENCY – 78 % CO2 emissions per vehicle since 2006 The reduction of carbon emissions and the respon- sible use of resources are important cornerstones of the BMW Group’s strategy. Its own plants and locations have a direct influence on both carbon emissions levels and resource consumption. The BMW Group has been committed to resource-efficient production at its plants for many years. This includes checking and monitoring the consumption of resources across the BMW Group’s production network. The principle of continuous im- provement applies throughout the BMW Group. It in- vests in efficient technologies and also continually seeks to optimise its existing processes and procedures. This principle has been highly successful, as the Group clearly surpassed its target of reducing resource consumption per vehicle produced by an average of 45 % by 2020 com- pared to 2006 , achieving an overall reduction of 56.7 %. Apart from continuously reducing energy consumption in general, the BMW Group is now focusing on convert- ing its electricity supply to renewable energy sources. Any remaining production-related emissions that cannot yet be avoided will be offset from 2021 onwards. NEW PRODUCTION TARGETS UP TO 2030 The biggest lever for reducing the BMW Group’s Scope 1 and Scope 2 emissions is at its production locations, which account for around 90 % of these emis- sions. The BMW Group has had considerable success in this area and repeatedly set new standards in terms of sustainable production methods. Between 2006 and 2020, carbon emissions per vehicle produced fell by around 78 % by continually improving energy efficiency, generating renewable electricity in-house and entering into direct supply contracts for green power (including guarantees of origin). Nevertheless, the BMW Group has already set itself the next target: compared to 2019, these emissions levels are to be reduced by a further 80 % per vehicle by 2030. As from 2021, the Group will make the remaining carbon emissions from Scope 1 and Scope 2 completely carbon- neutral by using voluntary offset certificates. 95 CARBON FOOTPRINT IN PRODUCTION REDUCED AGAIN Carbon emissions per vehicle produced fell by around 23 % to 0.23 t compared with the previous year. The reduction is a result of completely switching the BMW Group’s production network to green electricity generated from renewable sources. The BMW Group also managed to reduce the absolute level of carbon emissions generated by the production network to 486,630 t (2019: 697,025 t). GRI 305-4 CO2 EMISSIONS PER VEHICLE PRODUCED ¹, ² in t 1.0 0.5 0 0.54 0.41 0.40 0.30 0.23 2016 2017 2018 2019 2020 GRI 305-4, 305-5 1 Efficiency indicator calculated from Scope 1 and Scope 2 CO2 emissions (market-based method according to GHG Protocol Scope 2 Guidance. Other climate-impacting gases than CO2 not included) from vehicle production, without motorcycles, minus CHP losses divided by the total number of vehicles produced, incl. BMW Brilliance Automotive Ltd. joint venture, Shenyang / CN, not including the vehicles from the Magna Steyr and Nedcar contract production plants. 2 The figures for 2016 to 2018 were examined by the external auditor on the basis of a limited assurance engagement. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network 96 The absolute volume of carbon emissions fell by 13 % to around 66 million tonnes during the year under report. The main drivers were the reduction in fleet carbon emissions worldwide and the lower production volume due to the coronavirus pandemic. GRI 302-2, 305-1, 305-2, 305-3, 305-4, 305-5 BMW GROUP CO2 FOOTPRINT (CONDENSED VERSION) ¹ in t CO₂ / CO₂e 2020 2019 TOTAL EMISSIONS 2 65,828,005 75,987,119 MINIMISING RESOURCE CONSUMPTION AND OTHER EMISSONS The BMW Group wants to lead the way by keeping resource consumption in its production processes to an absolute minimum. Apart from carbon emissions, further decisive factors are energy and water consumption, the amount of waste sent for disposal and the use of solvents. In recent years, the BMW Group has made a great deal of progress in terms of resource consumption. Between 2006 and 2020, the BMW Group reduced its average re- source consumption and emissions generated per vehicle by 56.7 %, an improvement of 6.5 % year on year. The pandemic-related interruption of production at most BMW Group plants had a significant impact on energy consumption per vehicle. When the produc- tion facilities were restarted, the same base load ³ and simultaneously lower production volumes resulted in an overall increase in energy consumption per unit. Although the BMW Group’s energy consumption fell to 5,714,610 MWh (2019: 5,974,625 MWh) in absolute Energy Consumption in Detail, terms during the pandemic energy efficiency was negatively impacted by lower unit volumes and not least also by hygiene measures such as the requirement to increase the frequency of venti- lation. The BMW Group’s specific energy consumption for vehicle production in 2020 therefore rose by 3.9 % to 2.12 MWh per vehicle produced compared to 2019. GRI 302-1, 302-3, 302-4 Scope 1 Scope 2 Scope 3 642,885 642,259 84,257 302,574 65,100,863 75,042,286 IMPROVEMENT IN RESOURCE CONSUMPTION AND EMISSIONS FROM VEHICLE PRODUCTION SINCE 2006 per vehicle produced Average of the values Energy consumption CO2 emissions Water consumption Process wastewater Waste for disposal Solvent emissions GRI 302-3, 305-4 – 56.7 % – 38.0 % – 78.1 % – 31.0 % – 42.7 % – 82.4 % – 67.7 % 1 The detailed version of the BMW Group carbon footprint can be found in the section on BMW Group CO2 Footprint. 2 The emissions listed account for approximately 90 % of the BMW Group’s total Scope 1 to Scope 3 emissions. Scope 1 and Scope 2 emissions exclude climate-impacting gases other than carbon dioxide. 3 The base load is the amount of power permanently required (e. g. standby consumption), regardless of how many vehicles are produced. The base load includes energy required for emergency and basic lighting, min- imum ventilation or heating and air conditioning in standby mode. – 56.7 % Resource consumption and emissions from vehicle production since 2006 BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network ENERGY CONSUMPTION PER VEHICLE PRODUCED ¹, ² in MWh 3.0 1.5 0 GRI 302-3, 302-4 2.21 2.17 2.12 2.04 2.12 2016 2017 2018 2019 2020 At 2.25 m³ per vehicle produced, specific water consumption dropped by 3 % compared to the previous year. Water Consumption per Vehicle Produced The BMW Group continuously tries to further reduce energy and water consumption. It sees opportunities to save energy in particular by improving base load man- agement, for example by reducing standby consumption during shift breaks. In order to reduce water consump- tion, the BMW Group’s plants are further improving their circulation systems by means of wastewater treatment. – 38 % Energy consumption per vehicle produced since 2006 Optimisation measures are, however, offset by the high- er consumption required to cool the newly installed combined heat and power plants. The BMW Group has investigated the use of water sources other than drinking water in a number of its plants in future. It focused on locations in dry climatic regions, such as the plant in San Luis Potosí (Mexico). During the year under report, the volume of waste for disposal per vehicle produced decreased by 18.6 % to 3.33 kg compared to 2019. The main reason for differ- ences in the volume of waste for disposal is changes in the structure of the existing waste disposal companies at the BMW Group’s various locations. For example, in 2020 the Shenyang plant in China began using house- hold-type commercial waste to generate energy, a strategy also introduced at the Rosslyn plant in South Africa. Waste for Disposal per Vehicle Produced The BMW Group reduced its emissions of volatile organic compounds (VOC ³) per vehicle produced by 4.7 % to 0.81 kg in the 2020 reporting period. This year- on-year improvement is attributable to process optimi- sations such as restricting the quantity of material used for cleaning work, the use of solvent-free cleaning agents, and the equipping of several new paint shops with ex- tended thermal oxidisation facilities for base and clear coats, such as at the Munich, Dingolfing and Shenyang plants. Solvent Emissions per Vehicle Produced GRI 305-7 97 MONITORING RESOURCE CONSUMPTION The monitoring of resource consumption is an in- tegral part of the Group’s environmental management strategy in the global production network and is man- aged by the Steering Committee of the BMW Group’s international environmental protection network. Each facility, building and space at each location is allocated to an internal operator. Within this area, the operator is not only responsible for the facilities and technical systems as well as the smooth running of processes and procedures, but also for their environmental impact. ⁴ An environmental management system in accord- ance with ISO 14001 has been implemented at all 31 BMW Group production plants. With the exception of the Manaus plant in Brazil (planned for 2021), all Group sites are certified according to this standard. The five competence centres – emissions, water, waste, qualification and environmental management system – coordinate the BMW Group’s environmental protec- tion measures worldwide. Accordingly, any ecological improvements that have proven to be effective at one location are implemented at other locations to the extent possible. Ongoing further training and the exchange of information between employees are aimed at ensuring the transfer of knowledge. 1 Efficiency indicator calculated from electricity, heat, natural gas and heating oil consumption from vehicle production ( without motorcycles) minus CHP losses, divided by the total number of vehicles produced, ex- cluding vehicles from the Magna Steyr and Nedcar contract production plants, plus energy consumption of the engine plants and electric engines as well as battery production, divided by engine production in Hams Hall, Steyr, Munich and BMW Brilliance Automotive Ltd. in Shenyang. 2 The figures for 2016 to 2018 were examined by the external auditor on the basis of a limited assurance engagement. 3 VOC emissions (volatile organic compounds) are generated in particular during the painting process and can be reduced by deploying innovative painting technologies. 4 Each operator is required to describe the environmental impacts in the aspect register in accordance with the environmental management system and identify measures for improvement (e. g. long-term targets). BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network CIRCULAR ECONOMY MAXIMISES RESOURCE EFFICIENCY AND CONTRIBUTES TO CLIMATE PROTECTION The responsible use of resources plays a key role in the BMW Group’s business model. For example, if electric mobility is not only to be produced using pri- mary materials in the long term, the underlying flows of resources need to undergo a sustainable transforma- tion. The BMW Group intends to create high-quality secondary raw materials by promoting a greater degree of transparency in the recycling chain and tracking the actual further use of raw materials within the cycle. The Group wants to provide effective impetus for a circular economy that is viable in the long term by emphasising the importance of recycling valuable resources. At the same time, this strategy can significantly contribute to cutting carbon emissions (Scope 3 upstream), as the use of secondary raw materials can significantly reduce the size of the Group’s carbon footprint in its procurement and production processes – even down to as little as one-sixth, depending on the material. For this reason, the BMW Group has defined the circular economy as a strategic focus for the coming years. This includes its own internal initiatives as well as increasing its external commitment in dialogue with major stakeholders. The economical use of resources is already a key re- quirement in the design process and at the product devel- opment stage and guarantees that BMW Group products are designed to ensure that as much raw material as possible remains within the circular economy. In 2020, a total of 99.1 % of the waste generated in production processes was either recycled or recovered. To the extent viable, i. e. depending on the waste disposal market and distances to the supplier, the cycles of materials are phys- ically closed so that the resulting recyclates can be reused. End-of-life vehicles are therefore not considered as waste to be disposed of, but as a source of secondary raw ma- terials. For this reason, the BMW Group promotes the return of end-of-life vehicles, components and materials to the raw materials cycle. Together with its sales organi- sations in each country, the Group has already organised the taking back of end-of-life vehicles in 30 countries and offers environmentally friendly recycling services at more than 2,800 take-back centres. All vehicles brought onto the market since 2008 comply with global requirements for the recycling of end-of-life vehicles, components and materials. Already today, vehicles are required to be 95 % recyclable. GRI 301-3 By 2030, the BMW Group intends to further increase the percentage of recycled secondary raw materials in its vehicles while systematically developing the recy- cling process at the same time. During the year under report, around 25 % of the steel and up to 20 % of the thermoplastics the Group used for vehicle manufacturing were derived from secondary sources. Up to 50 % of the aluminium the BMW Group uses to make its aluminium castings comes from secondary sources. Average Distribu- GRI 301-2 tion of Materials in BMW Group Vehicles In its efforts to minimise waste, the BMW Group has developed recycling and reprocessing concepts that are adapted to the waste flows in its various plants, to region- al legal requirements and to existing local waste disposal structures. Moreover, the Group intends to increase its level of expertise in the development and production of Electric Mobility and create greater transpar- battery cells ency regarding the whereabouts and recycling of end-of- life vehicles and their resources. Input / Output Assessment 98 Through its own venture capital fund BMW i Ven- tures, the BMW Group has invested in key technologies that can make a decisive contribution towards achieving its long-term vision of carbon neutrality. In 2020, for ex- ample, BMW i Ventures invested in PureCycle, the first company in the world that can recycle polypropylene (an essential vehicle component) into a colourless and odourless native state. The BMW Group also invested in Prometheus Fuels, which has developed a technology that enables carbon-neutral synthetic fuels to be pro- duced using green energy. Logistics: freight carriers and carbon emissions In close cooperation with freight carriers, infrastructure oper- ators and commercial vehicle manufacturers, the BMW Group is developing ecologically sustainable logistics concepts. The Green Logistics strategy pursues the logistical aim of achiev- ing climate-neutral transportation, thereby contributing to the Group’s target of reducing carbon emissions in the supply chain by 20 % per vehicle by 2030 (base year 2019). The carbon footprint and the use of carbon-efficient energy and modes of transport is a decisive criterion for the BMW Group when selecting freight carriers. Currently, more than half of the vehicles the Group produces are transported from manufactur- ing plants by rail. When supplying vehicles to the Chinese mar- ket, the BMW Group is further reducing its carbon footprint by using the railway lines along the Silk Road more intensively. In or- der to reduce carbon emissions, some of the spare parts sent to China by airfreight are being increasingly dispatched by rail. For other overseas markets, the option to switch to intermodal air-sea transport has been tested. The BMW Group is increasingly working on the further devel- opment and piloting as well as the use of innovative technolo- gies and already deploys battery- and gas-driven trucks to sup- ply production facilities. In 2020, the BMW Group used the sea route from Belgium to Spain for vehicle production purposes. The use of biofuel from waste cooking oil led to a reduction in carbon emissions of 1,100 t. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network RENEWABLE ENERGY All BMW Group locations worldwide as well as the BMW Brilliance Automotive (BBA) joint venture purchase 100 % green electricity, i. e. energy generated from renewable sources ¹. With the aim of cutting the carbon emissions it generates in production processes by an additional 80 % per vehicle by 2030 (base year 2019) in a further step, the BMW Group systematically continues to invest in optimising the energy efficiency of its global production network. The strategy includes the use of process heat in paint shops and data analysis to reduce the power consumption of its machinery to a minimum. Moreover, the BMW Group is further ex- panding its own renewable power generation capacities at its various locations and increasing its energy storage capability. Leveraging these and other measures, the Group is making steady progress towards its long-term goal of becoming a leader in the use of renewable energy in production and value creation. RENEWABLE ENERGY GENERATED IN-HOUSE The BMW Group is reducing the size of its carbon footprint by generating its own electricity from renewable sources. It is utilising suitable technologies and develop- ing solutions, depending on the location and the on-site conditions. The various options range from solar energy, for example in Mexico, to biogas in South Africa and wind power in Leipzig. As the BMW Group’s in-house production cannot fully cover its energy requirements, it 99 buys in electricity from renewable sources – preferably locally. At the same time, in future the BMW Group intends to cover an increasing percentage of its elec- tricity requirements through so-called power purchase agreements (PPAs), i. e. direct purchases from defined renewable energy generation facilities. The Group is also working on solutions for storing renewable energy. For example, the storage farm at the BMW Group plant in Leipzig is equipped with high-volt- age batteries from the BMW i3 ². The storage farm is in- tegrated in the public power grid and provides control energy, which means the BMW Group is additionally helping to keep the public electricity grids stable. CLEAR PROCESSES, ROLES AND RESPONSIBILITIES Independent processes have been established throughout the company for planning and implementing energy-related measures, which assign clear roles and responsibilities to the central strategy departments, the regional controlling offices and the plants at local level. The BMW Group also maintains a close dialogue with its energy suppliers in local markets, monitors regulatory developments and calls in external support as needed in order to respond to any changes in the percentage of renewable electricity supplied and the size of its carbon footprint. SHARE OF GREEN ELECTRICITY PURCHASED FROM THIRD PARTIES 3, 4 in % 100 50 0 100 87 81 79 63 2016 2017 2018 2019 2020 100 % Green electricity from renewable sources 1 Electricity from in-house renewable generation plants, direct supply contracts for green electricity and certified proofs of origin. Fuel Consumption and CO2 Emissions Information. 2 See 3 Calculated based on volumes of green electricity purchased (including via certificates of origin). Relates to all BMW Group production locations including the BMW Brilliance Automotive Ltd., Shenyang, joint venture as well as motorcycle production and non-production areas. 4 The figures for 2016 to 2018 were examined by the external auditor on the basis of a limited assurance engagement. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network PURCHASING AND SUPPLIER NETWORK The BMW Group has laid the foundations for a stable and sustainable supply chain by organising its purchasing processes, managing international supply relationships with its partners and producing its own components. The Purchasing and Supplier Network therefore makes a significant contribution to the Group’s focus on the strategic markets of tomorrow, such as e-mobility and connectivity, and takes steps to ensure correspond- ing production volumes in the supply chain. With the growing demand for electrified vehicles, the need for the respective components and parts in production is also in- creasing. For battery cells in particular, the BMW Group is taking a variety of measures to accommodate this growth. For example, it will purchase the battery cells for its entire fifth generation from four different sup- pliers, thus making itself less dependent on individual manufacturers. Flexibility in terms of volume is both a premise and a decisive criterion for selecting battery cell suppliers. The Purchasing and Supplier Network has been op- erating on a global basis for many years and adheres to the principle of procuring parts and components locally. The BMW Group has efficient teams on the ground in all of its key purchasing markets. Direct contact with these local markets has proved particularly effective during the coronavirus pandemic. Despite the high level of pressure on the supply chain, the BMW Group again managed to ensure a seamless supply of parts to its globally located production plants throughout the 2020 reporting year. The supply chain has thus demonstrated its stability and flexibility, despite the exceptional conditions witnessed in the 2020 pandemic year. Its many years of sustainable activity in the purchasing and supplier network have also helped to build this resilience. Overall, the Purchasing and Supplier Network is responsible for the global procurement and quality as- surance of production materials, raw materials, capital goods and services as well as the in-house manufacturing of vehicle components. External suppliers are rigorously selected on the basis of competitiveness in terms of op- erational excellence, quality, innovation, flexibility, cost and sustainability. 100 REGIONAL DISTRIBUTION OF BMW GROUP PURCHASE VOLUMES * in € billion Asia / Australia 7.2 % 3.5 % Other Rest of Western Europe 14.3 % North America 18.1 % Total € 55.5 billion 40.0 % Germany 16.9 % Eastern Europe * Direct and indirect purchasing; excluding Joint Venture BMW Brilliance Automotive Ltd., Shenyang. GRI 102-9 60 % of value added attributable to suppliers BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network 101 SUSTAINABILITY INTEGRAL TO PURCHASING AND SUPPLIER NETWORK NEW TARGETS FOR DECARBONISATION IN THE SUPPLIER NETWORK MOTIVATING PARTNERS TO OPERATE SUSTAINABLY The BMW Group places great emphasis on cor- porate due diligence. The Group already addressed this issue in 2008, defining and setting out comprehensive environmental and social standards for the awarding of contracts for the BMW i3. Since 2010, the BMW Group has required its partners and suppliers for BMW i models to comply with human rights and extended environ- mental and social standards, including environmental protection management systems. Since 2014, these speci- fications have been mandatory for suppliers of all vehicle models. In 2019, this requirement was supplemented to include occupational health and safety management systems wherever necessary. For many raw materials, the requirement to ensure that environmental standards and human rights have not been violated poses a particular challenge, for instance in the case of lithium and cobalt, both of which are key raw materials for manufacturing battery cells. By the year 2030, the BMW Group intends to have over seven million electrified vehicles on the road. This means that the average carbon emissions generated by the BMW Group’s supplier network (scope 3 upstream according to SBTI) will increase by more than one-third per vehicle by 2030 if no countermeasures are taken. Apart from the growing percentage of electrified models in the BMW Group’s product range, the reasons are, for example, the energy-intensive production of battery cells, the greater use of aluminium and increased localisation in China, where the proportion of green electricity in the energy mix is still relatively low. Nevertheless, the BMW Group has set itself the goal of not only halting this trend, but even reversing it and reducing carbon emis- sions per vehicle in the supply chain ¹ by at least 20 % ² (base year 2019) by 2030. With this aim in mind, among other measures, since 2020 it has established the carbon footprint as a criterion for awarding contracts within the supply chain. The BMW Group is continuously expanding its sus- tainability activities across the supplier network. The fo- cus is essentially on three key issues: 1. Decarbonisation, 2. Compliance with environmental and social standards, particularly human rights, and 3. The protection of nat- ural resources. One of the biggest levers for promoting decarboni- sation in the supply chain is the use of green electricity. For this reason, the BMW Group has agreed with the suppliers of the current fifth generation of battery cells to use only green electricity from renewable sources for production purposes. Just as the BMW Group continuously implements optimisation and efficiency measures in its own pro- duction environment, it is also actively committed to promoting decarbonisation measures within its supplier network. By participating in the CDP supply chain pro- gramme, the Group motivates its suppliers to operate sustainably and, for example, utilise renewable energy in their production activities. The core of the programme consists of annual reporting that takes a multitude of climate-related aspects into account, including specific measures to reduce carbon emissions or increase the per- centage of renewable energy deployed. The BMW Group strongly encourages its suppliers to set targets in line with the Paris Climate Agreement and thereby contrib- ute to limiting global warming. The Group’s success is reflected in the steadily growing number of suppliers participating: 63 suppliers (2019: 40) reported at least one 2-degree-compliant target system, and 59 (2019: 54) plan to publish one within the next two years. at least – 20 % CO2 emissions per vehicles in the supply chain by 2030 1 Including transport logistics. 2 Value rounded for simplification purposes. The target percentage validated in conjunction with SBTI is 22 %. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network In 2020, a total of 218 suppliers to the BMW Group (2019: 199) reported via the CDP Supply Chain pro- gramme, accounting for approximately 79 % of the BMW Group’s production-related purchasing volume (2019: 78 %). The participating suppliers reported carbon reduction totalling some 22 million tonnes of emissions (2019: 32 million tonnes), which are proportionately attributable to the materials and goods supplied to the BMW Group. Due to the coronavirus pandemic and the re- sulting decrease in production volumes, carbon emissions were generally lower in 2020. Accordingly, the reduction in reported carbon emissions was also lower. GRI 308-1, 308-2, 414-1, 414-2 The BMW Group has integrated the assessments of the CDP Supply Chain Programme in its key purchasing processes. The results are used in discussions with sup- pliers, in strategic management meetings and in overall supplier strategies to point out potential for improvement. On average, suppliers that have been reporting within the CDP Supply Chain Programme for at least three years have improved. The BMW Group sees this fact as proof that the programme has become well established at the companies participating for longer periods and that it yields the intended results. In 2020, the Group also asked more than 1,000 additional suppliers who, as small and medium-sized companies, did not meet the criteria to be invited to the CDP Supply Chain Programme to complete a carbon-related questionnaire. The activity further cov- ered approximately another 11 % (and therefore a total of 90 %) of the Group’s production-related purchasing vol- ume. The results of the survey provided the BMW Group with additional insights that enabled it to further establish the carbon footprint assessment in the supply chain as an award criterion in decision-making processes. This was already the case in 18 out of 31 tenders with the largest carbon footprint. GRI 308-1, 308-2, 414-1, 414-2 102 RESPECT FOR ENVIRONMENTAL AND SOCIAL STANDARDS AND HUMAN RIGHTS KEY ELEMENTS FOR SUSTAINABLE MATERIALS PURCHASING It is a major challenge to ensure compliance with human rights as well as environmental, health and safe- ty standards in the extraction of raw materials. For this reason, BMW Group Purchasing goes beyond the mere contractual agreement of sustainability standards to a deeper point in the supply chain in order to conclude respective direct agreements at particularly critical points in the supplier network and ensures compliance with them by conducting audits. The BMW Group is also involved in various initia- tives to standardise management approaches towards implementing human rights due diligence and applying them throughout the entire supplier network. In Ger- many, for example, these include the industry dialogue on respect for human rights along the global supply and value chains of the German automotive industry, in which the BMW Group is actively involved. It is also active internationally and involved in initiatives to stand- ardise the mining of raw materials. By certifying mines in accordance with the standards of the Initiative for Responsible Mining Assurance (IRMA) or the Aluminium Stewardship Initiative (ASI), the BMW Group is promoting compliance with environmental and social standards right from the raw material extraction stage with the aim of making a significant contribution to improving compliance with human rights throughout international supply chains. During the year under report, the BMW Group included key sustainability issues such as biodiversity, deforestation and animal welfare in its Supplier Sustain- ability Policy, which forms the basis for the Group’s terms and conditions of purchase. Accordingly, BMW Group suppliers and all purchases are subject to the Group’s comprehensive sustainability requirements. In 2012, in its materials strategy the BMW Group identified particularly critical raw materials and other materials from a sustainability perspective and initiat- ed the cross-industry study Material Change Report (2018) on this basis. The Group continuously analyses the raw materials prioritised in the report as well as other materials essential for production with regard to their impact on the environment and society along the entire supply chain. By sourcing raw materials such as cobalt and lithium directly, the BMW Group can establish trace- ability and transparency with regard to environmental and social standards, which is critical for conducting due diligence in raw materials supply chains. BMW GroupReport 2020 Combined Management Report Production, Purchasing and Supplier Network 103 RESPONSIBLE USE OF NATURAL RESOURCES COMPREHENSIVE MEASURES AND COOPERATION IN A SPIRIT OF PARTNERSHIP ENSURE COMPLIANCE WITH SUSTAINABILITY STANDARDS. In addition to compliance with environmental and social standards and respect for human rights, the responsible use of nature’s finite resources also plays a major role. With the aim of protecting stocks of critical raw ma- terials, by 2030 the BMW Group plans to significantly increase the percentage of recycled raw materials, i. e. secondary raw materials, that it uses and to reuse these materials in line with circular economy principles. The growth of e-mobility is causing the topic of circular economy to become increasingly important, as a variety of critical raw materials are required to produce battery cells. The use of secondary raw materials significantly reduces the carbon footprint compared to primary ma- terials: by a factor of 4 to 6 for aluminium and by a factor of 2 to 5 for steel and thermoplastics. At its own plants, the BMW Group is gradually es- tablishing closed recycling loops between the plants and the raw materials manufacturers, such as at the Landshut components plant. In late 2019, the foundry in Landshut was certified by the Aluminium Stewardship Initiative (ASI) for its sustainable use of aluminium. Around half of the aluminium used at the BMW Group’s Landshut plant comes from a closed recycling loop. The Group is consciously reducing the use of carbon-intensive primary aluminium via this method. We can only succeed in achieving our sustainabil- ity goals by interacting with suppliers on the basis of mutual cooperation. Ultimately, climate protection and compliance with environmental and social standards are a challenge for the whole of society. As with quality, sustainability is all about accomplishing ambitious goals in close collaboration with the supplier network. With the aim of stepping up its efforts to ensure due diligence in the field of sustainability, since 2018 the BMW Group has been involved in developing the Automotive Sustainability Assessment (ASA) in the German Association of the Automotive Industry (VDA). Based on these guidelines, the performance of essential due diligence procedures can now be audited in a stand- ardised manner, even at the premises of medium-sized suppliers to the automotive industry. The BMW Group already applies the Responsible Business Alliance (RBA) audit programme for major suppliers from the electronics industry. It also carries out qualification, standardisation and empowerment measures and holds informational events, particularly in the case of supply chains exposed to a higher degree of risk. The aim is to further develop and actively bring about transformation at suppliers with regard to sustainability issues. In its efforts to achieve this aim, the BMW Group leverages both individual and standardised elements of the Drive Sustainability Initiative and the Responsible Business Alliance to integrate sustainability in business processes such as procurement. Electric mobility can only be sustainable if the raw materials it requires are also obtained as sustainably as possible. Take lithium for example: The BMW Group currently sources lithium for its fifth genera- tion of high-voltage batteries exclusively from Australia, where the material is extracted by means of a so-called hard rock min- ing process. Furthermore, the Group has commissioned a study on sustaina- ble lithium mining under the auspices of two renowned American universities in order to scientifically investigate water consump- tion in the extraction of lithium. The purpose of the study, which will be jointly conducted by the University of Alaska-Anchorage and the University of Massachusetts-Amherst, is to investigate the impact of lithium mining on local water supplies in Latin America. Lithium is the lightest metal on earth and is mainly used to pro- duce batteries, ceramics, glass and aluminium. It is therefore also an essential material for producing lithium-ion batteries and plays a key role in vehicle electrification. Two-thirds of the world’s lithium reserves are located in Latin America. To date, however, the impact of lithium mining in the re- gion has not been sufficiently scientifically studied. The gap will now be closed by the study commissioned by the BMW Group. BASF SE is also partially financing the study. BMW GroupReport 2020 In 2020, responsibility for sustainability in the supply chain and also energy was combined in a separate depart- ment within Purchasing. It comprehensively manages the integration of sustainability factors in the BMW Group’s procurement activities. At the same time, it works togeth- er closely with the Strategy department and continually adapts operational purchasing requirements. A detailed presentation of sustainability-related activities undertaken in the supplier network and a description of the OECD Due Diligence Guidance is available on the BMW Group website. Combined Management Report Production, Purchasing and Supplier Network Via the due diligence process, the BMW Group checks whether and how sustainability standards are be- ing implemented by its suppliers. Suppliers contractually undertake to comply with a range of requirements in line with their environmental (ISO 14001, EMAS) and occu- pational health and safety management systems (OHSAS 18001, ISO 45001) and to demand and maintain compli- ance with these agreements from their subcontractors. In 2020, the sustainability questionnaire for sup- pliers, which was initiated by the BMW Group in 2012 and jointly compiled by the automotive manufacturers, was comprehensively revised. The BMW Group’s Supply Chain Response Team processes any information regard- ing potential breaches of its sustainability standards in the supplier network. Furthermore, the BMW Group’s Human Rights Contact Supply Chain serves as the cen- tral point of contact and can be reached anonymously by telephone or email to report any potential violations of social or environmental standards by suppliers. The BMW Group has agreed corrective measures with 64 % (2019: 62 %) of the suppliers at which sustainability shortfalls were identified in the course of the reporting year. The suppliers are required to remedy these defi- cits prior to the start of production. The main areas to be acted upon in particular were hazardous materials management, waste management, working conditions and occupational health and safety. GRI 308-1, 308-2, 414-1, 414-2 104 The BMW Group follows the principle of empowerment before disengagement. The mining of cobalt entails risks, particularly when it comes to upholding human rights. The BMW Group is committed to en- suring that the mining and processing of cobalt are carried out in accordance with sustainability standards and international- ly applicable labour laws. For this reason, the Group purchases the cobalt needed to produce its fifth generation of battery cells directly from the mines themselves and makes it available to the battery cell suppliers. Around one-fifth of the BMW Group’s co- balt requirement is purchased from mines in Morocco and the re- maining four-fifths in Australia. At the same time, the Group is engaged in a pilot project in the Democratic Republic of Congo in keeping with the princi- ple of “empowerment before disengagement”. In 2018, the BMW Group joined forces with other partners to initiate the cross-sector initiative “Cobalt for Development” with the aim of improving the working and living conditions of workers engaged in small-scale cobalt mining operations in the Congo. As part of the project, around 40 members of 12 mining cooperatives were trained as trainers on occupational and environmental risks who pass on the content to more than 1,500 miners in the form of training courses. These programmes are underpinned by activi- ties in local communities by which the residents benefit from im- proved access to education and alternative income opportunities. The project is being implemented by the Gesellschaft für interna- tionale Zusammenarbeit (GIZ) GmbH. The aim of the project is to further develop and professionalise artisanal mining in the Congo to meet the BMW Group’s strict sustainability requirements and could be an option for sourcing cobalt in the long term. More information on this project is available here. BMW GroupReport 2020 Employees and Society 105 EMPLOYEES AND SOCIETY PROMISED THE BMW GROUP SEES DIVERSITY as a STRENGTH. That is why it has set targets for the long-term advancement of women at all levels of the company. BMW GroupReport 2020 Employees and Society DELIVERED The number of female managers at BMW AG has more than DOUBLED since 2011. 106 BMW GroupReport 2020 Employees and Society 107 “Commitment to a sustainable future is no longer just an option. It is an obli- gation. This is valid for the BMW Group and every other company. BMW has been a leader in sustainability for years – and we are now setting ourselves even more ambitious goals for the coming decade. We are putting sustainability at the very centre of the company, measuring our success and making this even more trans- parent through the BMW Group Report.” Ilka Horstmeier Member of the Board of Management of BMW AG, Human Resources, Labour Relations Director “Working at the BMW Group means taking responsibility far beyond our own premises – for our society, the environ- ment and all our stakeholders. It is our associates who are creating more sustain- able, connected and safer mobility. This is our contribution to a better future. This is what drives us forward every day.” Dr. Nicolas Peter Member of the Board of Management of BMW AG, Finance BMW GroupReport 2020 Employees and Society 108 Sabine Distler and Gabriele von Stetten are jointly responsible for diversity strategy at the BMW Group. We need DIVERSITY: It makes us MORE INNOVATIVE and MORE COMPETITIVE. WHAT DOES DIVERSITY MEAN TO THE BMW GROUP? The BMW Group firmly believes that diversity enhances our performance capabilities. Diverse teams are more innovative – because everyone brings a different perspective. Our customers are diverse, too. If we want to understand them, win them over and engage them, we also need this kind of diversity among our employees. THE BMW GROUP ALSO SETS ITSELF TARGETS – FOR EXAMPLE, FOR THE PERCENTAGE OF WOMEN IN MANAGEMENT. HOW CAN THESE GOALS BE ACHIEVED? We identify female talents at the com- pany and develop them selectively. At the same time, we continue to bring qualified women into the company. We already make sure we have a high percentage of women in our talent development pro- grammes. WHAT ABOUT OTHER DIVERSITY FACTORS? We have expanded our diversity strategy to include physical and mental ability, sexual orientation and identity, in addition to the previous dimensions of gender, cultural background, age and ex- perience. For certain factors, quantitative targets make sense; for others, we need qualitative goals. It's about creating the best-possible working environment in an open and respectful corporate culture. Further information is available at: report.bmwgroup.com BMW GroupReport 2020 109 QUALIFICATION, DEVELOPING AND RESTRUCTURING COMPETENCIES AVERAGE DAYS OF FURTHER TRAINING * Social, economic and technological developments require companies to continually adapt to new situations and qualify their employees to meet the challenges of the future. The BMW Group therefore invests continuously in measures aimed at establishing, broadening or adapt- ing the necessary competencies, and offers its workforce numerous options for training and further education. BROAD RANGE OF TRAINING AND FURTHER EDUCATION OPPORTUNITIES Lifelong learning is an integral part of everyday work- ing life at the BMW Group. It aims to ensure the efficien- cy and employability of its workforce and thus its own long-term competitiveness by offering a needs-oriented and innovative range of training courses, particularly in forward-looking fields of expertise such as digitalisation and electrification. GRI 404-2 In 2020, BMW Group employees spent an average of 2.0 days on further training (2019: 3.3). Number of days 5.0 2.5 0 3.8 3.4 3.4 3.3 2.0 2016 2017 2018 2019 2020 * Further training of employees and temp workers of the BMW Group in the consolidated companies world­ wide. Data retrieved by direct representation of the number of participants as well as a small share by quali­ fied extrapolation. The data also include e­learning courses. GRI 404­1 Due to the coronavirus pandemic, face-to-face training was only conducted to a limited extent during the period under report. However, the increased use of e-learning formats ensured that qualification courses were held, for the most part, despite the situation. GRI 404-1 Combined Management Report Employees and Society LONG-TERM EMPLOYEE DEVELOPMENT AND EMPLOYER ATTRACTIVENESS The success of the BMW Group is based on the personal commitment and technical expertise of its employees. As an attractive employer offering highly interesting future-oriented jobs, the BMW Group is look- ing to recruit new employees, deploy them in the best way possible and specifically promote their potential with the aim of ensuring their long-term employability. The success of this approach is reflected not only in the results of employee satisfaction surveys, but also in the awards the BMW Group has received as an attractive employer. EMPLOYEE DEVELOPMENT AND EMPLOYER ATTRACTIVENESS – KEY ASPECTS OF SUSTAINABILITY Promoting and developing the potential of its work- force and being an attractive employer are important aspects of sustainability for the BMW Group. And, as one of the most important stakeholder groups, it is log- ical to consistently involve employees in the dialogue when changing the Group’s strategic course. In a series of international stakeholder dialogues with employees from various regions in 2020, the BMW Group discussed its perception as a sustainable company as well as the main focus of its strategy. Dialogue with Stakeholders BMW GroupReport 2020 Combined Management Report Employees and Society INVESTMENT IN TRAINING AND FURTHER EDUCATION ¹ in € million 400 300 200 352 349 373 370 279 2016 2017 2018 2019 2020 Expenditure on training and further education to- talled € 279 million (2019: € 370 million). The year-on-year decrease was due to the coronavirus pandemic, whereby much of the training initially planned as face-to-face events had to be transferred to virtual formats, the cost of which was significantly lower. Strategic human resources planning helps manage the need for systematically developing and / or restructur- ing competences, ensuring that vacancies are filled and employees are qualified in good time. 1 Training and further education encompasses BMW Group vocational training in 11 countries and further education for employees and temp workers of the BMW Group in the consolidated companies worldwide. 2 Unlike the conventional management career with its focus on disciplinary leadership, the Expert Career pro­ gramme focuses on technical­, project­ or company­related topics that do not entail line responsibility for others. This Expert Career option enables the BMW Group to offer employees an additional career path. € 279 million Spending on employee training and development INVESTMENT AND TRAINING BOLSTER JOB SECURITY As one of the pioneers in this field, the BMW Group is also shaping the transformation to electric mobility and digitalisation. For example, it already commissioned its Autonomous Driving Campus in Unterschleißheim near Munich back in 2018 and its Battery Cell Competence Centre in Munich in 2019. By 2026, the Group intends to invest some €400 million in a new vehicle assembly line on the site of the current internal combustion engine production facility at its main plant in Munich. The transformation of production sites and long-term job security thus go hand in hand. Employees are trained and qualified in order to take on new responsibilities in other areas. For example, the BMW Group is further expanding its e-drivetrain production competence centre in Dingolfing. It has also established production facili- ties for battery modules and high-voltage batteries at its Leipzig and Regensburg plants, which are scheduled to begin production in 2021. Since 2009, the BMW Group has provided more than 52,000 people, not only its own employees, but also those of suppliers, with further training in the field of electric mobility. GRI 404-2 110 DEVELOPMENT AND FURTHER TRAINING FOR MANAGERS Excellent leadership is a vital prerequisite for deliv- ering outstanding performance in a competitive envi- ronment. The BMW Group’s managers play a key role in implementing its new corporate strategy. In order to develop this expertise, the BMW Group promotes per- sonalities who have the right attitude and individual, context-related behaviour, joint team leadership skills and a high degree of connectedness within the company. Apart from careers in management, the BMW Group also offers the Expert Career ². It empowers its managers to develop excellent leadership qualities based on a uniform understanding of leadership. GRI 404-2 Future orientation and innovative capability with FIZ Future The technological heart of the BMW Group beats in its Research and Innovation Centre (FIZ). With the FIZ Future programme, the BMW Group is combining its knowledge, expertise and creativity at its location in Munich (Germany) in order to research and devel­ op the individual mobility of the future, characterised by electrifica­ tion, digitalisation and connectivity. The opening of the FIZ Nord project building was a major milestone in the year under report. At the new FIZ Nord, the BMW Group is pooling the innovative strength and key competences it will need to take on the challenges of the future. For the first time, all its ve­ hicle drivetrain developers are working under one roof – on both state-of-the-art, highly efficient petrol engines and the latest gen­ eration of electric drivetrains. The key aim here is to promote in­ tensive collaboration and thus also the transfer of knowledge be­ tween the various technologies. With this strategy, the BMW Group has taken an important step towards developing the competences and networking of the people who work there as well as bolstering its innovative strength. BMW GroupReport 2020 Combined Management Report Employees and Society PROMOTING YOUNG TALENT Vocational training at the BMW Group makes an important contribution to meeting the constant demand for young talent within the company, thus underlining the attractiveness of the Group as an employer. At the same time, the Group has the ambition to develop per- sonalities through vocational training and enable young people to participate in society. With this point in mind, the BMW Group invests in vocational training and thus in the skilled workers of tomorrow. Despite the chal- lenges posed by the pandemic, the BMW Group again recruited 1,200 trainees in Germany alone during the year under report. This social responsibility still includes the promise that BMW AG will offer its trainees perma- nent positions after completing their vocational training at its various plants and at the company headquarters. For several years now, the BMW Group has been additionally investing in digitalised training, which has been even more widely used since the outbreak of the coronavirus pandemic. Innovative learning platforms and formats as well as digitalised learning content ensured that numerous training locations were able to continue offering training with virtually no gaps, even when the vocational schools were closed. Trainees are preparing for their future occupations in 30 skilled trades and 17 dual courses of study at 19 training locations around the world. The training oppor- tunities on offer are geared towards the Group’s future fields of activity. Graduate trainees thus play a key role in developing expertise within the BMW Group. GRI 404-2 The BMW Group attracts further young talents by offering academic programmes for junior staff and supports them in their professional and personal de- velopment through mentoring, networking and a wide range of qualification opportunities in practical and international assignments. Despite the coronavirus pan- demic, the BMW Group managed to implement all of its programmes. Face-to-face events were partially replaced by digital formats and the international assignments that form part of the Global Leader Development Programme ¹ were largely conducted at BMW AG level, despite the un- favourable conditions. The total number of apprentices and trainees participating in development programmes for junior staff within the BMW Group remained at the high level of 4,672 in the year under report (2019: 4,801; – 2.7 %). APPRENTICES AND PARTICIPANTS IN YOUNG TALENT PROGRAMMES ² Number 5,000 4,500 4,000 4,964 4,750 4,613 4,801 4,672 2016 2017 2018 2019 2020 1 International trainee programme for university graduates and young professionals across all disciplines. 2 Includes SpeedUp (an undergraduate programme) and Fastlane (a master’s programme). 111 THE BMW GOUP REMAINS AN ATTRACTIVE EMPLOYER Highly regarded industry ratings once again ranked the BMW Group as one of the world’s most attractive em- ployers in 2020. The BMW Group is therefore the world’s top-ranked automotive manufacturer in the current rank- ing of the World’s Most Attractive Employers 2020 as rated by the well-known study provider Universum. In the study – which counts as one of the leading studies in the field of employer attractiveness worldwide – the BMW Group ranked fourth among engineering and IT students worldwide, after Google, Microsoft and Apple. When conducting the study, Universum surveyed 235,000 students from the 12 economically largest na- tions worldwide. This recognition is a major success for the BMW Group. In the Trendence Young Professionals Barometer for Germany, the BMW Group again achieved top spot in 2020. As an attractive employer, the BMW Group offers fu- ture-oriented jobs and the right conditions for employees to grow personally and contribute towards shaping the future. Outstanding performance is a daily motivation to develop individual potential and make the company successful together. Universum study Top-ranked automotive manufacturer – World’s Most Attractive Employers 2020 BMW GroupReport 2020 Combined Management Report Employees and Society In our efforts to ensure that the BMW Group re- mains an attractive employer, we also offer above-average salaries for the respective labour markets. To verify this fact, we conduct remuneration studies each year on a worldwide basis. The total salary package consists of monthly remuneration and a variable component. We also offer a wide range of additional benefits, such as a company pension. GRI 401-2 Depending on their stage of life or living circum- stances, employees have different needs when it comes to organising their work and their working hours. For this reason and to help employees find a good work-life balance, the BMW Group offers a great deal of individual personal scope in the form of working time arrangements such as flexible working hours, remote working, addi- tional holidays in return for a corresponding reduction in salary, sabbaticals or temporary and permanent part-time solutions. These factors form the basis for individually adjusting contractually agreed working hours. The BMW Group is also investing in so-called new working environ- ments with the aim of offering employees contemporary and attractive spaces in which to collaborate. Every two years, the BMW Group conducts a com- pany-wide employee survey. The survey conducted in autumn 2019 again showed a slight improvement in the High Performance Index (HPO-I) compared to 2017. The HPO-I is integrated as a parameter in the BMW Group’s management system and measures the performance of the organisation as a whole. The results of the 2019 em- ployee survey were evaluated, analysed and internal measures derived accordingly. Among other aspects, at- tractiveness as an employer and overall satisfaction were rated with 85 % and 82 % approval respectively. Despite overall positive approval ratings with regard to employer attractiveness, a declining trend is discernible, which shows that topics such as climate change, sustainability 112 and electric mobility are becoming increasingly impor- tant for the workforce and thus also for the survey results. The BMW Group is responding to this development with its new strategy, focusing on sustainability and numerous internal initiatives, including stakeholder dialogues with employees on the topic of sustainability. The Group is also implementing the new strategic guidelines in its various corporate divisions. Its assessment regarding processes has also developed highly positively, albeit still at a low level. In order to encourage this positive trend, activities aimed at improving interdisciplinary coopera- tion have been stepped up. The results of the follow-up process were reported to the Board of Management in July 2020. The next employee survey is currently being prepared and will be conducted in autumn 2021. of personnel measures that reconciled the future viability of the organisation with the interests of the workforce. Firstly, the number of employees was reduced through natural fluctuation, and secondly by reaching voluntary agreements such as early retirement part-time working arrangements or direct early retirement. Appropriate provisions were recognised and the ex- pected cost included in personnel expenses. For details see note 15 to the Group Financial Statements. EMPLOYEE ATTRITION RATE * as a percentage of workforce MANAGING EMPLOYMENT AND WORKFORCE PLANNING As of 31 December 2020, the BMW Group employed a total of 120,726 people worldwide. From the 2020 re- porting period onwards, the figure denoting the size of the workforce only includes core and temporary employ- ees. The number of employees is slightly below that of the previous year (2019: number of employees based on new definition: 126,016; – 4.2 %). GRI 102-7, 102-8 The widespread restrictions on public life and the economy caused by the coronavirus pandemic also had a negative impact on the automotive industry in 2020. The BMW Group responded by taking a number of personnel measures. Initially, it made use of flexible arrangements such as reducing excess hours on time and holiday accounts, followed by the introduction of short-time working hours. In dialogue with the Works Council, the Group also agreed on a balanced package 5.51 2.70 2.64 2.78 3.39 7 3.5 0 2016 2017 2018 2019 2020 * BMW AG; number of employees on unlimited employment contracts leaving the Company. Strategic personnel planning serves as a tool for iden- tifying the need to readjust personnel and competence structures at an early stage. The BMW Group uses this information as the basis for making targeted improve- ments in the areas of training and further education, personnel development, marketing, recruiting and young talent programmes. BMW GroupReport 2020 Combined Management Report Employees and Society 113 HEALTH AND PERFORMANCE HEALTH MANAGEMENT WITH A HOLISTIC APPROACH The BMW Group places great emphasis on main- taining and promoting the health and the performance of its employees. It therefore encourages personal respon- sibility and designs its work environments with the idea of maintaining the health of its people in the long term. In line with this strategy, employees at all BMW Group locations have a comprehensive health management sys- tem available to them. The Group’s very high standards of occupational safety also serve as a preventive measure. Since 2011, the BMW Group has combined a set of coordinated measures to promote the health and performance of its workforce within its health initiative programme. A range of campaigns inform the workforce on subjects such as addiction prevention or ways of maintaining good mental health. Regular campaign days, dialogue events and training courses address current health topics such as nutrition, exercise and fitness, can- cer prevention or mental resilience and raise awareness of these issues accordingly. Due to the unprecedented circumstances caused by the pandemic, many of these events took place virtually. GRI 403-6 The BMW Group greatly emphasises the importance of all of its employees having access to the company’s in- house health services. In Germany, the focus is mainly on providing acute treatment for employees and temporary workers during working hours. In certain countries, how- ever, the Group’s health service also takes on primary care tasks, such as in Thailand, India or Mexico. The BMW Group’s company doctors also advise employees on individual preventive measures if requested to do so and help them adapt their work environment to ensure that their health and performance are maintained in the long term. GRI 403-2, 403-3 Measures to address the coronavirus pandemic In terms of health protection for the BMW Group’s workforce, the exceptional challenges posed by the coronavirus pandemic had to be addressed during the year under report. The primary aim was to ensure the Group’s ability to perform while at the same time pro­ tecting the health of its staff. For these reasons, the BMW Group set up a crisis management team without delay to draw up and implement effective protection and hygiene concepts. Staff and managers were promptly provided with information and recom­ mendations for action, not only to protect themselves, but others too. The crisis management team kept a watchful eye on inter­ national developments, as the infection spread extremely quick­ ly during the year under report. The BMW Group responded ef­ fectively in a challenging situation that had to be reassessed on a daily basis at times. Specially trained teams were sent out to the Group’s various lo­ cations and plants, advising managers and employees on how best to implement the protection and hygiene measures. The ex­ perts from the hygiene teams were also available to answer ques­ tions at any time. Moreover, a Group­wide information campaign helped inform employees on how best to contribute to curbing the rate of infection. Regular safety and hygiene inspections en­ sure that the measures are being implemented effectively and on a sustained basis during the pandemic. The BMW Group ensured the health and safety of its entire work­ force at its various locations throughout the year under report, despite the exceptional challenge posed by the coronavirus pan­ demic. The new SARS­CoV­2 occupational health and safety reg­ ulations were implemented at BMW AG and a works agreement was concluded to that effect. A comprehensive manual based on this agreement is ensuring the implementation of infection con­ trol measures worldwide. BMW GroupReport 2020 Combined Management Report Employees and Society In line with the general demographic change, the increasingly high average age of the workforce presents further challenges in terms of healthcare. The BMW Group’s Health Initiative also closely ad- dresses the concerns of employees looking to remain as healthy and productive as possible at an advanced age. GRI 403-3, 403-6 One of the parameters the BMW Group uses to quan- tify the success of its health management measures is the sickness rate. At 3.4 %, the sickness rate at BMW AG was lower than in the previous year (2019: 5.0 % or 3.7 % according to the new definition). GRI 403-10 The Group continuously strives to improve this figure by means of its health management measures. SICKNESS RATE ¹ in % 7.0 4.5 2.0 GRI 403­10 4.6 4.6 4.9 5.0 3.7 3.4 2016 2017 2018 2019 OLD 2019 NEW 2020 114 OCCUPATIONAL SAFETY AT ALL GROUP LOCATIONS ACCIDENT FREQUENCY RATE ² Occupational safety is one of the BMW Group’s fore- most preventive measures for protecting and maintaining the health of its workforce. The strategy is based on a comprehensive management system that not only meets legal requirements applicable at the Group’s various lo- cations, but frequently goes beyond them. Accordingly, the BMW Group is committed to ensuring and certifying the highest level of occupational safety at all its locations. The right to occupational health and safety is also a key feature enshrined in the BMW Group’s Code on Human Rights and Working Conditions. In the Code, the com- pany undertakes to consistently comply with currently applicable occupational health and safety legislation worldwide and also to set its own additional standards for improving occupational safety. GRI 403-1 Fortunately, in 2020 the accident frequency rate across the workforce as a whole dropped further to 3.2 accidents per 1 million hours worked (2019: 3.5). However, one fatal accident occurred at the Group’s Dingolfing plant during the year under report. By 2015, the BMW Group had already achieved the target it set itself in 2011 of halving the accident frequency rate to 4.5 accidents per 1 million hours worked by 2020. Since then, the BMW Group has endeavoured to continue reducing this rate. GRI 403-9 8.0 4.0 0 GRI 403­9 4.0 3.6 3.5 3.5 3.2 2016 2017 2018 2019 2020 69,092 or 99.7 % of people employed at BMW Group plants work at a location certified in accordance with an international occupational health and safety manage- ment system ³. GRI 403-1, 403-8 3.2 Accidents per one million hours worked 1 BMW AG; Number of hours of absence due to paid sick leave divided by the contractually agreed target number of working hours; up to 2019, absence due to unpaid sick leave was also taken into account. Figures up to 2018 are not comparable. 2 Number of occupational accidents with at least one day of absence from work per one million hours worked. 3 OHSAS 18001 / ISO 45001 (Occupational Health and Safety Assessment Series) or OHRIS (Occupational Health and Risk Management System). BMW GroupReport 2020 Combined Management Report Employees and Society External companies and their employees also need to be able to work safely at BMW Group locations. For this reason, cooperation with contractual partners is regulated in a separate contractor declaration, enabling potential hazards to be identified and appropriate protec- tive measures taken on this basis. On large construction sites, all employees of external companies are given safety briefings by BMW Group experts. On smaller construction sites, however, this duty is performed by the contractors themselves. The company department responsible for placing the order monitors compliance with the occupational health and safety regulations, sup- ported by the relevant occupational health and safety unit as required. In order to improve occupational safety at the up- stream stages of the value chain, too, the BMW Group requires its suppliers to comply with internationally recognised occupational health and safety requirements ¹ via its Purchasing Conditions. GRI 403-7 MANAGEMENT, TRAINING AND QUALITY ASSURANCE All topics relating to health and occupational safety within the BMW Group are combined in the Work En- vironment, Health, Group Safety and Group Data Pro- tection unit and allocated to the Board of Management’s Human Resources area of responsibility. Moreover, the managers in the various specialist departments are responsible for all related in-house processes. Health management and occupational safety, i. e. occupational health professionals, occupational medical staff, safety specialists and safety officers support and advise the respective internal departments. GRI 403-1 115 The BMW Group continually assesses and improves occupational health and safety at all its locations based on recognised management systems such as ISO 45001, OHSAS 18001 or OHRIS ², via occupational health and safety committees and by way of in-house risk assessments. Health and safety committees that include both employer and employee representatives work actively at nearly all BMW Group locations, making continuous improvements to occupational health and safety standards. GRI 403-4 The Group ensures the quality of its processes by conducting internal audits on an annual basis. Tests at the BMW Group’s various locations are performed by external certification organisations and the specialists re- sponsible for implementation are given regular training. Due to the challenges posed by the coronavirus pandem- ic, in order to comply with safety and hygiene regulations, audits were conducted partly on-site and partly virtually in the year under report. GRI 403-2, 403-4, 403-9, 403-10 In order to identify work-related risks in both pro- duction facilities and offices, the BMW Group conducts wide-ranging risk and stress analyses. For example, during the year under report, the internal analysis of an industrial accident uncovered a risk in the produc- tion of high-voltage batteries. A technical solution was then found to automate this stage of production. The employees concerned were then trained and instructed and their protective equipment was adapted accordingly. A specific risk assessment was also carried out pertaining to the coronavirus pandemic. Employees are encouraged to contact their managers at any time if hazards or risks are identified. Employees can also approach their des- ignated work representative at any time, or report risks and hazards anonymously via the Compliance hotline. GRI 403-2 On the basis of management systems, the BMW Group regularly evaluates all the methods and instruments used within the company. The results are then used to improve internal standards. As part of its co-determination process, the BMW Group involves the Works Council as well as representatives of the severely disabled and personnel management as required. To ensure occupational health and safety standards at all its locations, the BMW Group provides its staff with regular training. The BMW Group Academy is solely responsible for all training measures relating to environmental protection and occupational health and safety. It prepares its various seminars in cooperation with the relevant departments for occupational safety, ergonomics, environmental protection and health man- agement. However, the occupational safety, ergonomics and environmental protection departments or the health services can also develop and offer their own measures if required to do so at short notice. The BMW Group is also adapting these programmes in line with the current pandemic situation and increasingly switching to virtual solutions. GRI 403-5 1 In accordance with OHSAS 18001 / ISO 45001 and management systems derived from ILO (International Labour Organization) or UNGC (United Nations Global Compact). 2 OHSAS 18001 / ISO 45001 (Occupational Health and Safety Assessment Series) or OHRIS (Occupational Health and Risk Management System). BMW GroupReport 2020 Combined Management Report Employees and Society 116 EMPLOYEE DIVERSITY PROMOTING DIVERSITY AT ALL LEVELS The BMW Group sees diversity as a strength and this factor in its workforce is one of the keys to its cor- porate success. The BMW Group believes that diversity fosters innovation and therefore also boosts competitive- ness. A deeper understanding of the needs of customers around the world is just one example. In recent years, the BMW Group’s diversity concept has continued to broaden the eclectic nature of its workforce in terms of gender, cultural background, age and experience. For this reason, the Board of Management not only approved the Group’s existing diversity concept, but broadened it during the year under report. The BMW Group places great emphasis on an unprej- udiced, appreciative and inclusive working environment for all its employees. To underline its conviction, in 2020 the BMW Group continued expanding the diversity concept with the existing dimensions of gender, cultural background, age and experience to include sexual orien- tation and identity as well as disability. The BMW Group promotes a culture that sees strength in diversity and difference as a valued asset. It seeks to raise awareness of diversity issues among its employees and managers by means of training, presentations and dialogue formats and also promotes diversity and equal opportunity via its recruiting and personnel development measures. During the year under report, the BMW Group again organised an international Diversity Week with the aim of raising awareness of every dimension of diversity within the company and exerting a positive influence on its corporate culture. However, the programme was conducted exclusively online due to the coronavirus pan- demic. The Diversity Week and the simultaneously run global diversity awareness campaign were transmitted in a variety of digital formats and reached an approximate total of 92,000 BMW Group employees online. The equal treatment of all employees is a funda- mental principle firmly enshrined in Group policy. The BMW Group Code of Conduct and the BMW Group Code of Human Rights and Working Conditions rigorously ad- dress discrimination of all kinds. Employees are asked to contact their managers, the relevant specialised units, the personnel department or the Works Council if they have any pertinent concerns. The BMW Group SpeakUP Line is a telephone service available in over 30 languages that gives employees worldwide the opportunity to report possible violations both anonymously and confidentially. Diversity-promoting concepts have also been developed for selecting the future composition of the Board of Management and the Supervisory Board. The BMW Group provides information on the respective diversity criteria and how to implement them in its Corporate Governance Statement. BMW GroupReport 2020 Combined Management Report Employees and Society 117 PERCENTAGE OF FEMALE EMPLOYEES PERCENTAGE OF WOMEN IN MANAGEMENT POSITIONS AND IN THE TOTAL WORKFORCE OF THE BMW GROUP ² The BMW Group is committed to the sustained ad- vancement of women and has therefore set targets for the percentage of women employed at all levels of the company. This target framework was valid up to and including 2020. in % Entire workforce 20 18.7 19.3 Management positions 15.3 16.0 19.9 19.8 17.2 17.5 19.3 17.2 19.5 17.8 The percentage of women in management positions ¹ within the BMW Group has been rising steadily for many years. Globally, the proportion of female managers in the BMW Group stood at 17.8 % at the end of 2020 (2019: new definition; 17.2 %). At BMW AG, the number of women in management positions has more than doubled between 2011 and the present day. Expressed as a percentage, the proportion of female managers at BMW AG was 16.2 % (2019: new definition; 15.5 %) at the end of 2020. 10 0 2016 2017 2018 2019 OLD 2019 NEW 2020 The percentage of women employed in the BMW Group’s total workforce reached 19.5 % during the period under report (2019: new definition; 19.3 %), exceeding the internally agreed target range of 15 % to 17 %. At 15.9 %, the proportion of women working for BMW AG was within the target range of 15 % to 17 % (2019: new definition; 15.7 %). PERCENTAGE OF WOMEN IN MANAGEMENT POSITIONS AT BMW AG ² in % Entire workforce 20 By 2025, the BMW Group aims to increase the pro- portion of women in the workforce in general as well as in management positions to between 20 % and 22 %. BMW AG is aiming for a proportion of 17 % to 19 % of women in the total workforce and 19 % to 21 % in man- agement positions. To achieve this target, BMW AG care- fully analysed the effectiveness of its existing measures and programmes during the year under report, focused on specifically optimising them to suit requirements and derived new measures. These include, for exam- ple, new formats for the targeted promotion of young female managers and the option of filling management positions with two people at the same time in a form of joint leadership. In addition, the BMW Group ensures a high proportion of women in its young talent promotion programmes and is committed to a seamless return to working life after parental leave. In order to ensure gender pay parity, BMW AG has established a process that compares the monthly pay of men and women based on the categories of full-time, part-time and pay grade. In 2020, there were no signif- icant differences in the total remuneration packages offered to women and men at BMW AG. GRI 405-2 The proportion of women in young talent training programmes such as the Global Leader Development Programme increased to around 42 % (2019: 39 %) dur- ing the period under report. In the student promotion programmes such as Fastlane and SpeedUp, the figure was around 33 % (2019: 28 %). GRI 405-1 10 0 19.5 % Percentage of women in the BMW Group 15.8 Management positions 13.3 16.1 14.0 15.1 16.5 15.8 16.3 15.5 15.7 16.2 15.9 2016 2017 2018 2019 OLD 2019 NEW 2020 1 The proportion of women in management functions includes management levels I to IV. Management levels are defined in terms of their functional level and follow a comprehensive job evaluation system based on Mercer. 2 The new definition of the term “employee” is provided in the Glossary. The difference between old and new definitions in previous years is similar to the difference between 2019 new and old. BMW GroupReport 2020 Combined Management Report Employees and Society DIVERSITY IN ALL DIMENSIONS BMW AG EMPLOYEES BY AGE GROUP, DIVIDED INTO FUNCTIONS AND GENDER ¹ 118 It is supported in this respect by its internal network BMW Group PRIDE. Confirmation of this commitment can be seen, among other things, in the Group’s top 5 ranking in the DAX 30 LGBT+ Diversity Index 2020. Cultural background Employees from over 110 countries work together at the BMW Group. The ability to work together in inter- national teams in a spirit of trust and respect is key to the Group’s success. A broad range of opportunities for personnel development, qualification and further training promotes intercultural understanding. For example, the Global Leader Development Programme for newly recruit- ed employees is deliberately geared towards international participants. In 2020, new employees from eight countries took part in the programme (2019: 11 countries). With its “Courage to be more open” campaign, the BMW Group is also actively fighting against racism, for an unprejudiced working environment and mutual respect. Age and experience The BMW Group sees demographic change as both a challenge and an opportunity, as it offers people the chance to combine (life) experience and fresh ideas in a productive way. Since 2019, as part of the Senior Expert Programme, retired employees have been passing on their knowledge and experience to their younger colleagues. Within the Reverse Mentoring Programme organised by the BMW Group, older employees benefit from the new knowledge of the younger generation. Managers are qualified to recognise and leverage the opportunities and challenges that mixed-age teams offer. GRI 404-2 in % 2018 total 2019 total 2019 total new 1 2020 total direct 2 indirect 3 male female < 30 years old 30–50 years old > 50 years old Disability 11.7 11.1 11.6 10.4 14.1 8.3 9.4 16.1 59.2 59.1 59.2 59.9 53.3 63.8 59.3 63.0 29.1 29.8 29.2 29.7 32.6 27.9 31.3 20.9 Employees with disabilities need to be offered an inclusive and accessible working environment that enables them to fully develop their performance. That is the BMW Group’s mission. It begins with providing training opportunities for severely disabled young people and continues by designing workplaces that meet their needs. As part of an internal communication campaign, during the year under report the BMW Group encour- aged greater openness and assuredness in interaction with disabled employees. 1 Up to 2019: number of employees on unlimited employment contracts. From 2020, reporting based on new employee definition Glossary. 2 Clock­controlled and production employees. 3 All employees without clock control. GRI 405­1 Sexual orientation and identity Diversity also means living a corporate culture in which employees of all sexual orientations and identities are treated with equal appreciation and respect. With this point in mind, the BMW Group is committed, for example, to raising awareness among employees and managers for the concerns of lesbians, gays, bisexuals and transgender people, as well as to various cam- paigns as part of the LGBT+ movement’s PRIDE Month. In the coming years, the BMW Group intends to analyse its activities in all five dimensions of the ex- tended diversity concept and add new measures and programmes as the need arises. The Human Resources Policy and Strategy department and the operational Human Resources department, together with the disci- plinary managers, are responsible for all the measures provided for in this concept. BMW GroupReport 2020 Combined Management Report Employees and Society 119 CORPORATE CITIZENSHIP BUILDING BRIDGES BETWEEN CULTURES VOLUNTARY COMMITMENT OF EMPLOYEES Corporate citizenship is an integral part of the BMW Group’s corporate identity. The company’s com- mitment to corporate citizenship focuses in particular on long-term and international projects in which it can pro- vide targeted support with its own core competences. At all the Group’s international locations, this commitment aims at attaining better living conditions, intercultural understanding and good education. Support provided during the coronavirus pandemic The coronavirus pandemic posed major challenges for socie­ ty and companies worldwide in the year under report. In order to help handle this exceptional situation, the BMW Group has orient­ ed its measures internationally and focused on its areas of core competence. For example, the BMW Group made vehicles avail­ able to social and healthcare facilities. It also donated protective equipment to health authorities and medical facilities. The BMW Group aims to play a leading role in inter- cultural understanding. As a corporation with a multi- national workforce and locations on five continents, the BMW Group has a keen interest in encouraging tolerance and understanding between various nations, cultures and religions. Together with the United Nations Alliance of Civilisations (UNAOC), since 2011 the Group has regularly presented the Intercultural Innovation Award. The Award is designed to promote innovative projects that seek solutions to intercultural tensions and conflicts. Originally, the BMW Group had set itself the goal of reaching around one million people with the award-win- ning projects by 2020, but it surpassed that figure at an early stage. Since 2017, the Group has therefore been pursuing the new aim of supporting six million people with the award winners’ projects by 2025. By the end of 2020, the award-winning projects had already helped some five million people.* The BMW Group therefore believes it is well on the way to exceeding the target it has set itself. * The number of people supported is provided by the award winners at the end of each year. It is calculated based on combined data from media and sources. The figure reported relates only to the people who benefit directly from the projects concerned. The BMW Group is increasingly involving its em- ployees in its social commitment efforts. Since 2011, the company has presented the BMW Group Awards for Social Commitment to its employees. The award goes to staff members who have made a special contribution through their voluntary work. In 2020, five employees were honoured for their charitable social commitment, two of them even received special awards from the Dop- pelfeld Foundation. The BMW Group Awards for Social Commitment are each endowed with € 5,000, which go directly to the respective aid projects. This year’s award winners come from India (Ooruni Foundation), Germany (Gesellschaft für Kinderkrebsforschung e.V. and Hilfe für Kinder in Kenya) and South Africa (Gauteng Community Organization and Golden Youth Club). In addition to the award winners, each of the other five finalists received prize money of € 2,500. The organisation Waves For Water is another project with employee involvement that the BMW Group has been successfully working together with for five years. As part of this initiative, employees near the Group’s locations in Mexico, India, Thailand and Indonesia help provide families with water filters to facilitate their access to clean drinking water. In the year under report, the project was unfortunately interrupted by the coronavirus pandemic, but will be continued as soon as circumstanc- es permit. BMW GroupReport 2020 Combined Management Report Employees and Society 120 EDUCATION CREATES BETTER PROSPECTS FOR LIFE PEOPLE REACHED BY THE BMW GROUP’S TOTAL EXPENDITURE ON CORPORATE CITIZENSHIP CORPORATE CITIZENSHIP ACTIVITIES ¹ BY TYPE OF ACTIVITY ³ At its various locations, the BMW Group develops educational projects that facilitate young people’s first steps into the labour market and offer them better pros- pects for life. With its programmes from primary school level through to higher education, the BMW Group is making a lasting contribution towards more equal op- portunity. The BMW Group bases its funding approach on the specific needs and requirements at its various locations. During the year under report, the BMW Group again supported a range of educational projects in the USA, Thailand, India, Brazil, Mexico, China, Korea, South Africa and Germany. However, due to the coro- navirus pandemic, it was unable to offer its support to the same extent as before.¹ The workshops were there- fore conducted with a smaller number of participants and online whenever possible. The BMW Group used any funds that could not be deployed for educational measures due to the coronavirus restrictions to mitigate the immediate consequences of the pandemic. Support provided during the coronavirus pandemic People reached by Intercultural Innovation Award­ winning projects since 2011 By the end of 2020: approx. 5 million Target 2025: 6 million in € thousand 100,000 87,837 4 Commercial Activities Community Investment Donations/ payments in kind 50,000 0 33,436 37,242 33,229 33,631 1 Due to the coronavirus pandemic, the number of people who took part in educational projects was not 3 The activities of the BMW Group in the area of corporate citizenship are divided into three main areas: recorded in 2020. DONATIONS WORLDWIDE ² monetary donations and payments in kind; community investment, which refers to investment in project initiatives and partnerships conceived in­house as well as corpor ate volunteering by BMW Group employees; and our commercial activities, which encompass sponsorship and so­called cause­related marketing. 4 The relatively high amount in 2016 is due to a one­off donation to increase the capital of the BMW Foundation in the BMW centenary year 2016 from € 50 million to € 100 million. 2016 2017 2018 2019 2020 For further information and additional projects, see in € million the website BMW Group’s Corporate Citizenship. Sports 5.2 % 0.1 % Politics The BMW Group’s investment in corporate citizenship totalled € 33.6 million in 2020 (2019: € 33.2 million). Environment / Sustainability 2.4 % Culture 8.6 % Society / Community 26.7 % Total 16.2 57.0 % Science / Education 2 In the form of donations and payments in kind. € 33.6 m Expenditure on Corporate Citizenship BMW GroupReport 2020 Combined Management Report Employees and Society MANAGING CORPORATE CITIZENSHIP IN A TARGETED AND EFFECTIVE MANNER To ensure transparency regarding all the measures taken in this area, the Group-wide guidelines on spon- soring, donations and memberships have been binding since 2011. Apart from transparency, it is also essential to carefully document all the measures in order to ensure that legal requirements are complied with. The BMW Group will continue to be socially active on a global basis and focus its commitment on the UN Sustainable Development Goals going forward. The joint initiatives of the BMW Group and its partners, particular- ly the BMW Foundation Herbert Quandt, therefore focus on the topics in which they can have the greatest impact and benefit society to the greatest extent. 121 Inspiring, connecting, investing – the BMW Foundation Herbert Quandt The BMW Foundation Herbert Quandt * is an independent corporate foundation whose activities contribute towards the BMW Group’s cor­ porate citizenship and mission. The Foundation’s mission is to inspire executives worldwide to take social responsibility and work as respon­ sible leaders for a peaceful, just and sustainable future. Moreover, the Foundation invests in initiatives and organisations that develop solu­ tions to social, environmental and political crises. Through its Responsible Leadership programmes, the global Respon­ sible Leaders Network and its impact­oriented investments (the Eber­ hard von Kuenheim Fund), the BMW Foundation Herbert Quandt has promoted the UN Sustainable Development Goals since their adoption in 2015. The digital transformation expedited by the coronavirus pandemic also impacted the Foundation’s programmes in 2020. For example, the Re­ sponsible Leaders Table format events on the topic of Europe featuring selected leaders from the worlds of politics, business and civil socie­ ty were held virtually. The Foundation also conducted the Responsible Leaders forums that had already been planned for Turkey and India on­ line. The RISE­City programme was carried out in Amsterdam, Madrid, Athens and Singapore – either physically or on a hybrid basis – depend­ ing on the local situation. The Responsible Leaders Network, which currently has 1,854 members in 109 countries, also maintained its col­ laboration via online meetings. In order to actively support the ongoing transformation to a sustainable society and a sustainable economic system, the Foundation launched the RESPOND Accelerator programme in 2020. For the first group, ten start­ups were selected that aim to successfully develop their sus­ tainable business models. RESPOND aims to demonstrate that social responsibility and successful entrepreneurship are not contradicto­ ry concepts. As part of the five-month programme, which got off to a successful start despite the adverse conditions caused by the pandem­ ic, the start­ups received support from mentors and investors from the Foundation’s network. In response to the challenges posed by the coronavirus pandemic, the BMW Foundation Herbert Quandt supported the German government’s #WirvsVirus hackathon both financially and via its RESPOND network during the year under report. This world’s largest hackathon aims to de­ velop creative solutions to combat the impact of the pandemic. Further information about the BMW Foundation Herbert Quandt is available here: www.bmw-foundation.org/en/ * The BMW Foundation Herbert Quandt is a corporate foundation of BMW AG. The Foundation implements its programme with the income earned on endowment assets or received in the form of regular financial contributions from the benefactor. In accordance with the Articles of Incorporation, the independent Foun­ dation is advised by the Board of Trustees (Kuratorium), on which the Chairman of the Supervisory Board and one member of the Board of Management of BMW AG are represented. BMW GroupReport 2020 Combined Management Report Report on Economic Position REPORT ON ECONOMIC POSITION GENERAL AND SECTOR- SPECIFIC ENVIRONMENT In 2020, the coronavirus crisis caused the global economy to slump on a scale not seen since the Great Depression of the 1930s. The International Monetary Fund (IMF) estimates the contraction in global gross domestic product (GDP) at 3.5 %. All G7 countries saw a significant drop in economic output. The BRIC countries also suffered sharp declines – with the notable exception of China. 122 Europe’s economy was hit harder than any other major region. In the eurozone, the economy contracted sharply by 7.6 % year-on-year. Significant losses were recorded in Germany (– 5.0 %), France (– 8.3 %), Italy (– 9.0 %) and Spain (– 11.0 %), the eurozone’s largest economies. With many areas of the economy complete- ly paralysed at times due to lockdowns lasting several weeks, both production and consumption slumped dramatically. Unemployment rates rose in all countries, despite the increases being at least partially held down by short-time work programmes. Governments across the region implemented extensive economic stimulus packages to support their countries’ economies. The assistance programmes caused government spending to rise sharply in 2020, resulting in higher debt ratios in the respective countries. GDP in the United Kingdom (UK) slumped by 10.7 % in 2020. The performance was influenced not only by the consequences of the coronavirus pandemic, but also by the ongoing uncertainty surrounding the terms of the Brexit trade deal, which would ultimately govern the UK’s future relations with the European Union (EU). In the USA, GDP fell by 3.5 % during the year under report. Due to the lockdowns and in the absence of short-time work programmes, the unemployment rate rose significantly. Consumer sentiment and exports both slumped during various parts of the year. Both corporate investment and industrial production suffered a significant decline. In light of the ensuing economic situation, the US Federal Reserve (FED) further lowered its benchmark interest rates in 2020. Although China was the only economy to expand in 2020, its growth rate of 2.3 % was significantly down on the previous year. Consumer demand collapsed almost completely during the spring lockdown. However, strong pent-up demand set in from early summer and lasted through to the end of the year, thereby helping the econ- omy to recover. Export-reliant Japan also suffered a considerable de- cline in economic output (– 5.3 %) due to the coronavirus pandemic during the period under report. The main factors here were lower private consumption, particularly in the spring, and the drop in exports. BMW GroupReport 2020 Combined Management Report Report on Economic Position 123 CURRENCY MARKETS EXCHANGE RATES COMPARED TO THE EURO Index: December 2015 = 100 150 100 50 Source: Reuters. British pound Russian rouble Chinese renminbi US dollar Japanese yen 2016 2017 2018 2019 2020 2021 The US dollar / euro exchange rate became far more volatile in 2020 due to the coronavirus crisis. It fluctuated between 1.07 and 1.22 to the euro, and resulted in an average rate for the year of 1.14 US dollars to the euro. The value of the British pound was affected by both the coronavirus pandemic and the uncertainties surrounding a free trade agreement with the EU. For a while, the British currency fell to 0.93 pounds to the euro before finishing the year at 0.83 pounds to the euro. The average exchange rate of 0.89 pounds to the euro for the year was slightly lower than one year earlier. The same applies to the Chinese renminbi, which averaged 7.87 renminbi to the euro over the year as a whole. The Japanese yen fluctuated between 114 and 127 yen to the euro, resulting in an average exchange rate for the year of 122 yen to the euro. The currencies of major emerging markets also lost in value in 2020 as a consequence of the coronavirus crisis. The Indian rupee and the Russian rouble fell by around 5 % and 14 % respectively against the euro on average, while the Brazilian real depreciated by as much as 33 % against the euro. BMW GroupReport 2020 124 Looking at raw materials for batteries, the price of cobalt remained largely stable compared to the previous year. By contrast, the price of lithium fell slightly, reflect- ing lower demand due to the coronavirus pandemic on the one hand and oversupply on the other. Combined Management Report Report on Economic Position ENERGY AND RAW MATERIALS PRICES The impact of the coronavirus pandemic was also felt on practically all commodities markets in 2020. After falling noticeably in mid-year, steel and aluminium prices rose again sharply towards the end of the year. Prices for precious and non-ferrous metals also followed a similar trend. One exception, however, was rhodium, which is mainly used in catalytic converters. In this case, prices continued to rise significantly through- out the 12-month period. By the end of the year the price of this precious metal had almost tripled compared to one year earlier. DEVELOPMENT OF METALS PRICES STEEL PRICE TREND Index: December 2015 = 100 Index: January 2016 = 100 500 400 300 200 100 0 Palladium Gold Cobalt Platinum Lithium carbonate 200 150 100 50 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 Source: Reuters. Source: Working Group for the Iron and Metal Processing Industry. BMW GroupReport 2020 Combined Management Report Report on Economic Position 125 Oil prices reacted sharply to the coronavirus pan- demic and the related collapse in demand. The market price of WTI crude even turned negative for a short time. Although the price recovered somewhat by the end of 2020, it remains slightly lower than one year earlier. The price of Brent crude sank to a low of 19 US dollars before recovering to stand at 51 US dollars by the end of the year. For a short time in April, WTI crude was quoted at a negative market price of 37 US dollars, ultimately finishing the year at a positive market price of 48 US dollars. OIL PRICE TREND Price per barrel of Brent Crude 100 50 0 Source: Reuters. Price in US dollars Price in euros 2016 2017 2018 2019 2020 2021 AUTOMOBILE MARKETS Automobile markets slumped worldwide in 2020 due to the impact of the coronavirus pandemic. In total, reg- istration figures for passenger cars and light commercial vehicles fell sharply by 13.3 % to a total of 72.4 million units during the year under report. INTERNATIONAL AUTOMOBILE MARKETS Europe thereof Germany thereof France thereof Italy thereof Spain thereof United Kingdom (UK) USA China Japan Total Change in % – 24.3 – 19.1 – 25.5 – 27.7 – 32.3 – 29.4 – 14.5 – 5.0 – 11.4 – 13.3 BMW GroupReport 2020 Combined Management Report Report on Economic Position 126 OVERALL ASSESSMENT BY MANAGEMENT OF THE FINANCIAL YEAR The BMW Group coped well with the major chal- lenges that arose during the pandemic year 2020 and, in view of the pronounced level of volatility on international markets, can look back on a business performance over the last 12 months that can be regarded as satisfactory overall. Despite declining key performance indicators in 2020, the BMW Group’s results of operations, financial position and net assets are indicative of its solid finan- cial condition. Overall, business developed in line with management’s revised expectations. This assessment also takes into account events after the end of the reporting period. The outlook for 2021 factors in the expected impact of the coronavirus pandemic. INTERNATIONAL MOTORCYCLE MARKETS INTERNATIONAL INTEREST RATE ENVIRONMENT IN 2020 International motorcycle markets in the 250 cc plus class were down slightly overall (– 0.9 %) in 2020 due to the pandemic. Markets in Europe were also negatively impacted by the developments and contracted by 1.1 %. In Spain, the decline was significantly higher at 13.7 %. Registration figures were also down in Italy (– 9.1 %) and France (– 4.6 %). By contrast, Germany saw a significant increase, with new registrations up by 15.0 %. The US market was at a similar level to the previous year (+ 0.1 %). Brazil, on the other hand, recorded a significant drop (– 17.7 %). INTERNATIONAL MOTORCYCLE MARKETS Europe thereof Germany thereof France thereof Italy thereof Spain America thereof USA thereof Brazil Total Change in % – 1.1 15.0 – 4.6 – 9.1 – 13.7 – 3.5 0.1 – 17.7 – 0.9 The coronavirus pandemic and its severe impact on the economy in 2020 also prompted central banks around the world to adopt drastic countermeasures. The aim of their monetary policies was to mitigate the effects of the downturn, for example by making it easier for smaller companies to access cheap credit. In the first half of the year, the European Central Bank (ECB) decided to increase the existing bond pur- chase programme to € 120 billion per month and launch an additional emergency bond purchase programme (Pandemic Emergency Purchase Programme – PEPP) with a total volume of € 1,850 trillion. As a direct response to the economic impact of the coronavirus pandemic, the Bank of England (BoE) cut its benchmark interest rate in two steps from 0.75 % to 0.1 % during the first quarter and increased its bond-buy- ing programme to a total volume of 895 billion British pounds. In the USA, in two emergency meetings held during the first quarter, the Fed lowered its target range for the benchmark interest rate from between 1.50 and 1.75 % to between 0.00 and 0.25 %. It also announced further measures, including a commitment to make unlimited bond purchases. After suffering an economic slump at the beginning of the year, but then avoiding a second wave of infec- tions, China recovered earlier and faster than other major economies. Instead of introducing massive stimulus pro- grammes, China increasingly relied on other instruments, such as lowering the reserve requirement ratio to 12.5 % and the loan prime rate to 3.85 %. BMW GroupReport 2020 Combined Management Report Report on Economic Position 127 COMPARISON OF FORECASTS WITH ACTUAL OUTCOMES BMW GROUP COMPARISON OF 2020 FORECASTS WITH ACTUAL OUTCOMES 2020 The following table shows the development of key performance indicators for the BMW Group as a whole as well as for the Automotive, Motorcycles and Financial Services segments in the financial year 2020 compared to the forecasts made in the Annual Report 2019. In light of the rapid escalation of the coronavirus crisis during the first quarter 2020, the BMW Group partially revised its outlook for the year. The changes are shown below. Detailed information on the Group’s key perfor- mance indicators is provided in conjunction with the analysis of the Group’s results of operations, financial position and net assets below. Changes in key perfor- mance indicators for the Automotive, Motorcycles and Financial Services segments are explained in the separate sections for each segment. Forecast for 2020 in 2019 Annual Report Forecast revision during the year Actual outcome in 2020 GROUP Profit before tax significant decrease € million Workforce at year­end in line with last year’s level Q1: slight decrease AUTOMOTIVE SEGMENT Deliveries to customers 1 significant decrease Emissions new vehicle fleet 2 significant decrease EBIT margin between 2 and 4 Q1: between 0 and 3 Return on capital employed significant decrease MOTORCYCLES SEGMENT Deliveries to customers EBIT margin slight decrease Q1: significant decrease Q3: moderate decrease between 6 and 8 Q1: between 3 and 5 Return on capital employed slight decrease Q1: significant decrease FINANCIAL SERVICES SEGMENT Return on equity slight decrease Q1: moderate decrease 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2020: 602,247 units). 2 EU including Norway and Iceland. units g CO2 / km % % units % % % 5,222 (– 26.6 %) significant decrease 120,726 (– 4.2 %) slight decrease 2,325,179 (– 8.4 %) moderate decrease 99 (– 22.0 %) significant decrease 2.7 (– 2.2 %­pts.) 12.7 (– 16.3 %­pts.) significant decrease 169,272 (– 3.4 %) slight decrease 4.5 (– 3.7 %­pts.) 15.0 (– 14.4 %­pts.) significant decrease 11.2 (– 3.8 %­pts.) slight decrease BMW GroupReport 2020 Combined Management Report Report on Economic Position RETAIL VEHICLE DELIVERY DATA * In December 2019, BMW Group was informed by the SEC that the SEC had commenced an inquiry into BMW Group’s vehicle sales and sales reporting practic- es. On January 22, 2020, the SEC formally opened an investigation into potential violations of U. S. securities laws by BMW Group relating to disclosures regarding BMW Group’s unit sales of new vehicles. On Septem- ber 24, 2020, BMW AG and two of its U. S. subsidiaries settled the matter with the SEC and, without admitting or denying the allegations, consented to the entry of an order (the “SEC Order”) finding violations of Sections 17(a)(2) and 17(a)(3) of the U. S. Securities Act and agreed to pay a penalty of U. S.$18 million. The SEC Order alleged, among other things, that the disclosures that BMW Group had provided to investors in its U. S. bond offerings conducted under Rule 144A in the period from 2016 to 2019 had contained material misstatements and omissions regarding BMW Group’s U. S. retail vehicle deliveries. In connection with the above, BMW Group reviewed prior period retail vehicle delivery data for automo- biles and determined that certain vehicle deliveries of automobiles were not reported in the correct periods. BMW Group has corrected its reported delivery data, as further described below, to report deliveries in the period in which they occurred and has made, and will continue to make in the future, certain adjustments to its poli- cies and procedures (together, the “Revised Reporting Process”) in order to further improve the reliability and validity of its retail vehicle delivery data, in particular with respect to the timing of the recognition of retail vehicle deliveries. BMW Group has applied the Revised Reporting Process to all markets with effect from the year 2020. While BMW Group revised retail vehicle delivery data for certain of its most significant markets for the years 2016 through 2019 presented in this report, such data were not revised for BMW Group’s other markets. As a result, retail vehicle delivery data presented in this report for the years 2016 through 2019 is not directly comparable to such data presented for the year 2020. Specifically, the retail vehicle delivery data for automobiles presented in this report have been revised as follows: 128 When presenting total retail vehicle delivery data for automobiles other than model-by-model data, data relating to the years 2016 through 2019 for BMW Group’s 16 most significant markets were adjusted to reflect the Revised Reporting Process. In the years 2016 through 2019, these 16 markets represented on average approxi- mately 87 % of BMW Group’s total retail deliveries of au- tomobiles. For each of the years 2016 through 2019, these revisions amounted to less than 1 % of BMW Group’s total retail deliveries of automobiles. The retail vehicle delivery data for automobiles for BMW Group’s other markets have not been adjusted for any period prior to 2020, nor have any retail vehi- cle delivery data for motorcycles been adjusted for any period prior to 2020. BMW Group believes the impact on BMW Group’s retail vehicle delivery data presented in this report of such data not having been adjusted to reflect the Revised Reporting Process to be immaterial. * See Glossary for the definition of deliveries. BMW GroupReport 2020 129 BMW Group believes the retail vehicle delivery data presented in this report are materially correct in accord- ance with BMW Group’s current definition and related policies and procedures of retail vehicle deliveries. Retail vehicle deliveries during a given reporting period do not correlate directly to the revenue that BMW Group recognizes in respect of such reporting period. Combined Management Report Report on Economic Position The preparation of BMW Group’s retail vehicle deliv- ery data involves a variety of estimates and judgments, some of which are complex and all of which are inher- ently subjective, and is subject to other uncertainties, including: — The vast majority of deliveries of vehicles are carried out by independent dealerships or other third parties, and BMW Group is reliant on such third parties to correctly report relevant data to BMW Group. — The definition of deliveries includes vehicles deliv- ered in the United States and Canada if the relevant dealers designate such vehicles as service loaner vehicles or demonstrator vehicles. — Retail vehicle delivery data for periods prior to 2020 include an immaterial number of pre-series vehicles that were never intended to be sold to end users (such as vehicles for use by government agencies in connection with safety evaluations (e. g., crash tests) or for other tests). BMW GroupReport 2020 Combined Management Report Report on Economic Position 130 RESULTS OF OPERATIONS OF THE BMW GROUP BMW GROUP CONDENSED INCOME STATEMENT in € million Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income and expenses Profit before financial result Financial result Profit / loss before tax Income taxes Profit from continuing operations Profit / loss from discontinued operations Net profit Earnings per share of common stock in € Earnings per share of preferred stock in € in % Pre­tax return on sales 1 Post­tax return on sales 2 Gross profit margin 3 Effective tax rate 4 1 Group profit before tax as a percentage of Group revenues. 2 Group net profit as a percentage of Group revenues. 3 Gross profit as a percentage of Group revenues. 4 Income tax expense as a percentage of Group profit before tax. 2020 2019 Change in % 98,990 – 85,408 13,582 – 8,795 43 4,830 392 5,222 – 1,365 3,857 – 3,857 5.73 5.75 2020 5.3 3.9 13.7 26.1 104,210 – 86,147 18,063 – 9,367 – 1,285 7,411 – 293 7,118 – 2,140 4,978 44 5,022 7.47 7.49 2019 6.8 4.8 17.3 30.1 – 5.0 0.9 – 24.8 6.1 – – 34.8 – – 26.6 36.2 – 22.5 – – 23.2 – 23.3 – 23.2 Change in %-pts. – 1.5 – 0.9 – 3.6 – 4.0 BMW GroupReport 2020 Combined Management Report Report on Economic Position Group revenues by region were as follows: BMW GROUP REVENUES BY REGION in % Europe Asia Americas Other regions Group BMW GROUP COST OF SALES in € million Manufacturing costs Cost of sales relating to financial services business thereof interest expense relating to financial services business Research and development expenses thereof amortisation of capitalised development costs Service contracts, telematics and roadside assistance Warranty expenses Other cost of sales Cost of sales 131 Due to coronavirus-related dealership closures, Group revenues for the financial year under report were moderately down on the previous year (2020: € 98,990 million; 2019: € 104,210 million; – 5.0 %). Negative currency effects caused by the unfavourable development of the US dollar, the Russian rouble and the Chinese renminbi also had a downward impact on revenues. Factors working in the opposite direction included product mix effects due to the less pronounced drop in the sale of high-revenue models, higher selling prices on the back of a rejuvenated product range, and a portfo- lio-related upturn in leasing revenues. Positive develop- ments on pre-owned vehicle markets were reflected in higher revenues generated from the sale of returned lease vehicles, particularly in the third and fourth quarters. Due to the drop in new leasing business in the first half of the year as well as the expected decline in new leasing business in light of lower inventory levels at dealerships, the amount of revenues eliminated on consolidation decreased year-on-year. * Group cost of sales amounted to € 85,408 million, similar to the previous year’s level (2019: € 86,147 mil- lion; – 0.9 %). Higher risk-provisioning expenses, mainly arising in connection with the measurement of credit and residual value risks, were partially offset by reduced manufacturing costs due to lower production volumes. * Further information is provided in note 5 to the Group Financial Statements. 2020 44.3 32.1 21.4 2.2 2019 44.4 30.6 22.7 2.3 100.0 100.0 2020 2019 Change in % 46,878 27,114 1,960 5,689 1,710 1,411 2,971 1,345 48,776 25,828 2,288 5,952 1,667 1,641 2,566 1,384 85,408 86,147 – 3.9 5.0 – 14.3 – 4.4 2.6 – 14.0 15.8 – 2.8 – 0.9 BMW GroupReport 2020 Combined Management Report Report on Economic Position In addition, warranty expenses were negatively impacted in 2020 by the recognition of provisions in connection with the exhaust gas recirculation cooler and vehicle recalls (such as for contaminated battery cells in plug-in hybrid vehicles). Cost of sales relating to Financial Services business went up as a result of the costs associated with the sale of returned lease vehicles, mirroring the impact on rev- enues. Furthermore, the eliminations described above had an equal and opposite impact on revenues, resulting in a year-on-year decrease in the amount of cost of sales eliminated on consolidation. Research and development expenses were slightly lower than in the previous year. Higher expenses were incurred in 2019 including those relating to the BMW iX ¹ for instance. By contrast, the amount capitalised for future vehicle model start-ups increased in the financial year un- der report. The higher level of capitalised development costs mainly related to new models, the electrification of the vehicle fleet and automated driving. Depreciation and amortisation on property, plant and equipment and intangible assets recorded in cost of sales and in selling and administrative expenses totalled € 6,143 million (2019: € 6,017 million). Selling and administrative expenses decreased year- on-year, influenced in particular by lower personnel expenses (due to a year-on-year decline in the number of employees) and a decrease in expenses for marketing and communication (including the impact of new model launch events transmitted via digital formats). Stringent fixed cost management also contributed to the reduction in selling and administrative expenses. BMW GROUP RESEARCH AND DEVELOPMENT EXPENDITURE in € million Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 132 2020 2019 5,689 – 1,710 2,300 6,279 5,952 – 1,667 2,134 6,419 BMW GROUP PERFORMANCE INDICATORS RELATING TO RESEARCH AND DEVELOPMENT EXPENSES in % Research and development expenditure ratio 2 Capitalisation rate 3 2020 6.3 36.6 2019 Change in %-pts. 6.2 33.2 0.1 3.4 The net amount of other operating income and ex- penses improved significantly, whereby the year-on-year change was attributable to the expense recognised in the first half of the previous financial year for the provision relating to ongoing antitrust proceedings. ⁴ Profit before financial result dropped sharply to € 4,830 million (2019: € 7,411 million), reflecting the various negative impacts on gross profit described above. The financial result improved significantly year-on- year. The figure reported for 2020 benefited in particular from an increase to € 1,212 million (2019: € 918 million) of at-equity earnings generated by the Chinese joint ven- ture BMW Brilliance Automotive Ltd., Shenyang, as well as from the gain of € 105 million recorded by THERE Holding B. V. on the sale of shares in the card service provider HERE International B. V. to Mitsubishi Corporation (MC) and Nippon Telegraph and Telephone Corporation (NTT) ⁵ during the first half of 2020. In the previous year, the financial result also included higher impairment losses recognised in connection with the strategic realignment of the YOUR NOW Group. Fuel Consumption and CO2 Emissions Information. 1 See 2 Research and development expenditure as a percentage of Group revenues. 3 Capitalised development costs as a percentage of research and development expenditure. 4 Further information is provided in 5 Further information is provided in note 10 to the Group Financial Statements. note 24 to the Group Financial Statements. BMW GroupReport 2020 Combined Management Report Report on Economic Position As forecast most recently in the quarterly state- ment to 30 September 2020, Group profit before tax of € 5,222 million was significantly lower than one year earlier (2019: € 7,118 million) and therefore in line with the revised outlook. Income tax expense for the year decreased to € 1,365 million (2019: € 2,140 million), mainly due to the pandemic-related drop in earnings. The effective tax rate fell to 26.1 % (2019: 30.1 %). In the previous financial year, the effective tax rate was raised due to the non-deducti- bility of items for tax purposes, namely the recognition of the provision relating to the EU Commission’s anti- trust proceedings and impairment losses relating to the YOUR NOW Group, the latter of which was reported within other financial result. The size of the workforce decreased slightly to 120,726 employees year-on-year and was therefore in line with expectations (2019: 126,016 *; – 4.2 % employees). 133 FINANCIAL POSITION OF THE BMW GROUP The consolidated cash flow statements for the Group and the Automotive and Financial Services segments show the sources and applications of cash flows for the financial years 2020 and 2019, classified according to operating, investing and financing activities. Cash and cash equivalents in the cash flow statements correspond to the amounts disclosed in the balance sheet. Cash flows from operating activities are determined indirectly, starting with Group / segment profit before tax. By contrast, cash flows from investing and financing activities are based on actual payments and receipts. BMW GROUP CASH FLOWS in € million 2020 2019 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Cash inflow (+) / outflow (–) from financing activities Effects of exchange rate and changes in composition of Group Change in cash and cash equivalents 13,251 – 3,636 – 8,254 140 1,501 3,662 – 7,284 4,790 – 111 1,057 9,589 3,648 – 13,044 251 444 * Since the reporting year 2020, a new definition for workforce size has been applied (see Glossary). To enable better comparability, the value for 2019 was adjusted accordingly (2019 before adjustment: 133,778 employees). BMW GroupReport 2020 Combined Management Report Report on Economic Position 134 Focused capital market management, good rat- ings and the high level of acceptance enjoyed by the BMW Group on those markets enabled it to refinance itself on the world’s debt capital markets at favourable conditions during the period under report, despite the temporary impact of the coronavirus pandemic on those markets. In addition to bonds, loan notes and private placements, the Group also issued commercial paper. As in previous years, the issues were all in high demand, not only from institutional investors, but also from private investors for selected transactions. In addition, retail customer and dealership financing receivables as well as rights and obligations from leasing contracts are securitised in the form of asset-backed securities (ABS) financing arrangements. Specific banking instruments, such as the customer deposits used by the Group’s own banks in Germany and the USA, are also deployed for financing purposes. In addition, loans are also taken from international banks. Despite lower earnings, the increase in net cash in- flows from operating activities can be explained primarily by the pandemic-related drop in new business recorded by the Financial Services segment. The swift measures taken at production level to adjust to the coronavirus situation also resulted in lower levels of inventories at dealerships and simultaneously to a reduction in receiv- ables from sales financing, primarily in the form of lower credit financing for dealerships. Advance tax payments also dropped year-on-year due to the lower earnings. The reduction in inventories had a positive impact on the change in working capital, whereas the decrease in trade payables, caused mainly by earlier plant closures and stringent cost management, had an offsetting effect. The year-on-year change in cash flows from investing activities was positively influenced by the level of net out- flows disbursed in 2019 for investment assets, primarily for the acquisition of the YOUR NOW companies. In addi- tion, the higher level of investments in property, plant and equipment and intangible assets in 2019 – particularly for the market launch of new vehicle models such as the BMW 1 Series, the BMW 3 Series and the X5 – resulted in a year-on-year decrease in cash outflows. Proceeds from the sale of marketable securities also had a positive impact on the net cash outflow from investing activities. The net cash outflow from financing activities was mainly attributable to lower financing requirements in the Financial Services segment and the related reduction in bond issues, the reduced volume of asset-backed fi- nancing and the repayment of liabilities to banks. REFINANCING A broad range of instruments on international money and capital markets is used to refinance worldwide op- erations. The funds raised are used almost exclusively to refinance the BMW Group’s Financial Services business. The overall objective of Group financing is to ensure the solvency of the BMW Group at all times, focusing on three areas: 1. The ability to act through permanent access to stra- tegically important capital markets 2. Autonomy through the diversification of refinancing instruments and investors 3. Focus on value through the optimisation of financing costs Financing measures undertaken at corporate level ensure access to liquidity for the Group’s operating sub- sidiaries at standard market conditions and consistent credit terms. Funds are acquired in line with a target liability structure, comprising a balanced mix of financ- ing instruments. The use of longer-term instruments to refinance the Group’s Financial Services business and the maintenance of a sufficiently high liquidity reserve serves to rule out any imminent liquidity risk for the portfolio. This conservative financial approach also has a favourable effect on the Group’s rating. Further infor- mation is provided in the section “Liquidity risks” within the “Report on Outlook, Risks and Opportunities”. BMW GroupReport 2020 135 Combined Management Report Report on Economic Position In 2020, the BMW Group issued one euro benchmark bond on the European capital market with a total issue volume of € 2.3 billion as well as one bond on the US capital market with a total issue volume of 4.0 billion US dollars. In addition, one bond was issued for a total amount of 0.4 billion British pounds. Private placements totalling € 3.6 billion were also issued, including so-called “Panda Bonds” for an amount of 6.0 billion Chinese renminbi. A total of nine public ABS transactions were executed in 2020, including three transactions in China, two in Germany and one each in Japan, the USA, Canada and the UK, with a total financing volume equivalent of € 5.8 billion. In addition, further financing equivalent to € 10.7 billion was realised or secured in the UK, Ger- many, the USA, Switzerland and Australia via new and prolonged ABS conduit transactions. Other transactions remain in place in Germany, China, the UK, the USA, Canada, Japan and South Africa, amongst others. The following table provides an overview of amounts utilised at 31 December 2020 in connection with the BMW Group’s money and capital market programmes: Programme in € billion Euro Medium Term Notes Australian Medium Term Notes Commercial Paper * Measured at exchange rates at the relevant transaction dates. Programme framework Amount utilised* 50.0 1.6 13.0 35.3 – 0.6 Liquidity-related measures were put in place during the first half of the year to enable the Group to respond flexibly to ongoing uncertainties caused by the coronavi- rus pandemic and to manage operations at short notice in the event of possible renewed containment measures. Reflecting the improved situation on capital markets in the second half of the year, the BMW Group was able to reduce the amount of liquidity on hand to € 17.8 billion at 31 December 2020, similar to the previous year’s level. The BMW Group also has access to a syndicated credit line, which was renegotiated in July 2017. The syndicated credit line of € 8 billion has a term ending in July 2024 and is being made available by a consortium of 44 international banks. The credit line was not being utilised at 31 Decem- ber 2020. Further information with respect to financial liabilities is provided in notes 31, 35 and 39 to the Group Financial Statements. BMW GroupReport 2020 Combined Management Report Report on Economic Position 136 NET ASSETS OF THE BMW GROUP BMW GROUP CONDENSED BALANCE SHEET AT 31 DECEMBER Adjusted for currency effects, the BMW Group’s balance sheet total was slightly lower than at 31 Decem- ber 2019. Including currency effects from the US dollar and pound sterling, amongst others, the balance sheet total decreased moderately. ¹ in € million ASSETS Property, plant and equipment (adjusted for currency effects) were slightly down on the previous year, mainly due to the lower amount of capital expenditure in 2020. In the previous year, investments at the BMW plants in Spartanburg, USA and San Luis Potosí, Mexico had the effect of increasing property, plant and equipment. 1 Further information is provided in 2 The adjustment for exchange rate factors is calculated by applying the relevant current exchange rates to note 5 to the Group Financial Statements. the prior year figures. Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred and current tax Other assets Inventories Trade receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Pension provisions Other provisions Deferred and current tax Financial liabilities Trade payables Other liabilities Total equity and liabilities Group 2020 2019  Change in % Currency-adjusted change ² in % Proportion of balance sheet total in % 2020 12,342 21,850 41,995 3,585 735 84,277 7,752 3,065 10,326 14,896 2,298 13,537 11,729 23,245 42,609 3,199 703 92,437 7,325 3,403 12,939 15,891 2,518 12,036 216,658 228,034 61,520 3,693 13,982 1,256 106,376 8,644 21,187 216,658 59,907 3,335 13,209 1,595 116,740 10,182 23,066 228,034 5.2 – 6.0 – 1.4 12.1 4.6 – 8.8 5.8 – 9.9 – 20.2 – 6.3 – 8.7 12.5 – 5.0 2.7 10.7 5.9 – 21.3 – 8.9 – 15.1 – 8.1 – 5.0 5.6 – 3.5 2.6 12.0 11.8 – 4.7 7.2 – 7.1 – 17.9 – 3.1 – 6.7 14.9 – 1.6 7.1 11.7 8.9 – 18.9 – 5.9 – 13.3 – 4.2 – 1.6 5.7 10.1 19.4 1.7 0.3 38.9 3.6 1.4 4.8 6.9 1.1 6.2 100.0 28.4 1.7 6.5 0.6 49.1 4.0 9.8 100.0 BMW GroupReport 2020 Combined Management Report Report on Economic Position 137 Leased products (adjusted for currency effects) were slightly up on the previous year due to portfolio growth, mainly in Germany, Italy and Switzerland. Other provisions increased year-on-year due to addi- tions to risk provisions in connection with the exhaust gas recirculation cooler and various recalls, such as for contaminated battery cells in plug-in hybrids. Receivables from sales financing (adjusted for cur- rency effects) went down slightly compared to 31 De- cember 2019, primarily due to the decrease in dealership financing, mainly in the USA, Germany, the UK and France. A total of 1,238,286 new credit financing con- tracts were concluded with retail customers during the financial year 2020. The number of contracts in place with dealerships and retail customers decreased by 0.6 % to 4,040,231 contracts. Group equity rose slightly by € 1,613 million to € 61,520 million, driven primarily by the profit of € 3,775 million attributable to shareholders of BMW AG. The dividend payment for the financial year 2019 amounted to € 1,646 million, reducing equity accordingly. Financial liabilities decreased moderately over the twelve-month period, with repayments of maturing bonds exceeding new issues. Despite the volatility caused by the outbreak of the coronavirus pandemic, the results of operations, finan- cial position and net assets of the BMW Group remained stable throughout the financial year, thanks to a raft of measures that were immediately implemented, including focused working capital management, strict investment and fixed cost management and targeted liquidity man- agement. BMW GROUP EQUITY RATIO * in % Group Automotive segment Financial Services segment * Equity capital as a percentage of the balance sheet total, respectively. 31. 12. 2020 31. 12. 2019 Change in %-pts. 28.4 37.0 10.5 26.3 35.5 9.9 2.1 1.5 0.6 BMW GroupReport 2020 Combined Management Report Report on Economic Position 138 VALUE ADDED STATEMENT BMW GROUP VALUE ADDED STATEMENT The value added statement shows the value of work performed by the BMW Group during the financial year, less the value of work bought in. Depreciation and amortisation, cost of materials, and other expenses are treated as bought-in costs in the value added calculation. The allocation statement applies value added to each of the participants involved in the value added process. The bulk of the net value added benefits the employees. The remaining proportion in the Group is retained to finance future operations. The gross value added amount treats depreciation and amortisation as a component of value added which, in the allocation statement, would be treated as internal financing. Net valued added by the BMW Group remained at a high level in the financial year 2020. WORK PERFORMED Revenues Financial income Other income Total output Cost of materials * Other expenses Bought-in costs Gross value added Depreciation and amortisation of total tangible, intangible and investment assets Net value added ALLOCATION Employees Providers of finance Government / public sector Shareholders Group Minority interest Net value added 2020 in € million 2020 in % 2019 in € million 2019 in % Change in % 98,990 650 916 98.4 0.6 0.9 104,210 – 22 1,031 100,556 100.0 105,219 52,355 16,766 69,121 31,435 11,976 19,459 12,244 2,129 1,229 1,253 2,522 82 52.1 16.7 68.8 31.3 11.9 19.3 63.0 10.9 6.3 6.4 13.0 0.4 57,358 14,923 72,281 32,938 10,749 22,189 12,451 2,466 2,250 1,646 3,269 107 99.0 – 1.0 100.0 54.5 14.2 68.7 31.3 10.2 21.1 56.1 11.1 10.1 7.4 14.7 0.5 19,459 100.0 22,189 100.0 – 5.0 – – 11.2 – 4.4 – 8.7 12.4 – 4.4 – 4.6 11.4 – 12.3 – 1.7 – 13.7 – 45.4 – 23.9 – 22.9 – 23.4 – 12.3 * Cost of materials comprises all primary material costs incurred for vehicle production plus ancillary material costs (such as customs duties, insurance premiums and freight). BMW GroupReport 2020 139 Combined Management Report Report on Economic Position BMW GROUP VALUE ADDED 2020 in % Depreciation and amortisation 11.9 16.7 Other expenses Cost of materials 52.1 19.3 Net value added 63.0 % Employees 10.9 % Providers of finance 6.3 % Government / public sector 6.4 % Shareholders 13.0 % Group 0.4 % Minority interest BMW GroupReport 2020 140 Combined Management Report Report on Economic Position RESULTS OF OPERATIONS BY SEGMENT BMW GROUP REVENUES BY SEGMENT in € million Automotive Motorcycles Financial Services Other Entities Eliminations Group 2020 2019 Change in % Currency adjusted change * in % 80,853 2,284 30,044 3 – 14,194 98,990 91,682 2,368 29,598 5 – 19,443 104,210 – 11.8 – 3.5 1.5 – 40.0 27.0 – 5.0 – 10.5 % – 1.1 % 2.9 % 0.0 % – 26.5 % – 3.5 % * The adjustment for exchange rate factors is calculated by applying the relevant current exchange rates to the prior year figures. BMW GROUP PROFIT / LOSS BEFORE TAX BY SEGMENT in € million Automotive Motorcycles Financial Services Other Entities Eliminations Group 2020 2019 Change in % 2,722 100 1,725 – 235 910 5,222 4,467 187 2,272 – 96 288 7,118 – 39.1 – 46.5 – 24.1 – – – 26.6 BMW GroupReport 2020 Combined Management Report Report on Economic Position BMW GROUP MARGINS BY SEGMENT in % Automotive Gross profit margin 1 EBIT margin 2 Motorcycles Gross profit margin 1 EBIT margin 2 1 Gross profit as a percentage of segment revenues. 2 Profit / loss before financial result as a percentage of segment revenues. 2020 2019 Change in %-pts. 11.6 2.7 15.0 4.5 14.9 4.9 19.3 8.2 – 3.3 – 2.2 – 4.3 – 3.7 141 BMW GroupReport 2020 Combined Management Report Report on Economic Position REVIEW OF OPERATIONS AUTOMOTIVE SEGMENT BMW GROUP ASSERTS ITS POSITION AS LEADING PREMIUM MANUFACTURER The worldwide restrictions placed on public and pri- vate life due to the coronavirus pandemic also affected the BMW Group and its dealership organisation. Against this backdrop, deliveries ¹ were extremely volatile in 2020. After a promising start to the year, sales figures slumped in the spring, before recovering from the third quarter onwards. During the final months of the year, the BMW Group returned to its successful course. In 2020, the BMW Group delivered a total of 2,325,179 ² BMW, MINI and Rolls-Royce brand automo- biles to customers (2019: 2,537,504 ², ³ units; – 8.4 %), once again leading the premium segment worldwide. Due to the impact of the coronavirus crisis in the first half of 2020, deliveries were originally expected to drop significantly over the year as a whole. In the end, however, the decrease was relatively moderate at 8.4 %, largely on the back of a distinct recovery, particularly in the final quarter. 142 DELIVERIES OF ELECTRIFIED MODELS ³ in units 2020 2019 Change in % BMW Group PHEV 148,121 106,639 BMW Group BEV 44,541 39,519 Total 192,662 146,158 38.9 12.7 31.8 A strong second six-month period also contribut- ed significantly to the brands making up for a major part of the coronavirus-related decline in the first half of the year. Over the full year, the BMW brand deliv- ered 2,028,841 ² units to customers worldwide, 7.1 % below the record figure set one year earlier (2019: 2,184,939 ², ³ units). MINI was also down year-on-year at 292,582 units (2019: 347,465 ³ units; – 15.8 %). Following the previous year’s record high, Rolls-Royce Motor Cars delivered a total of 3,756 of its ultra-luxury brand vehi- cles to customers in 2020 (2019: 5,100 ³ units; – 26.4 %). PROPORTION OF ELECTRIFIED VEHICLES UP SIGNIFICANTLY The growing number of electrified models offered by BMW and MINI brands was again reflected in the sharply rising delivery figures recorded in 2020. Over the twelve-month period, the BMW Group sold a total of 192,662 electrified BMWs and MINIs worldwide, around one-third (31.8 %) up on the previous year (2019: 146,158 ³ units). Accordingly, electric mobility has become a significant growth driver for business. In the meantime, the BMW Group has expanded its portfolio of electrified vehicles to 14 models, which are available in a total of 95 countries worldwide. Based on its existing plans, the BMW Group will have 25 electrified models on the road by 2023. The launch of the fully electric MINI ⁴ and the pres- entation of the BMW iX3 ⁴ during 2020 will be followed in 2021 by the first deliveries of the two fully electric models, the BMW iX ⁴ and the BMW i4. Glossary for the definition of deliveries. 1 See 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2020: 602,247 units, 2019: 538,612 units). 3 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. 4 See Fuel Consumption and CO2 Emissions Information. Comparison of Forecast with BMW GroupReport 2020 Combined Management Report Report on Economic Position 143 FLEET CO2 TARGETS MORE THAN ACHIEVED ¹ – EMISSIONS WITHIN THE LEGAL LIMIT Figures for the UK deteriorated significantly, with deliveries falling to 163,174 units (2019: 233,771 ³ units; – 30.2 %), not least due to uncertainty over reaching a trade deal with the EU and the course of the pandemic. BMW GROUP – KEY AUTOMOBILE MARKETS 2020 as a percentage of sales volume Measures taken by the BMW Group to reduce fleet- wide carbon emissions are having a marked effect. The increased share of electrified vehicles delivered and the rigorous use of Efficient Dynamics technologies have enabled the BMW Group to achieve the stipulated fleet CO₂ limit for 2020, based on regulatory requirements. Fleet carbon emissions of vehicles delivered in Europe at the end of the reporting period were 99 g CO₂ / km (2019: 127 g CO₂ / km; – 22.0 %). Sales of the BMW Group’s three brands on the Amer- ican continent totalled 379,714 units (2019: 472,879 ³ units; – 19.7 %). Other 28.6 A total of 307,876 units were delivered to customers in the USA (2019: 375,726 ³ units; – 18.1 %). Despite a challenging environment due to the coronavirus pan- demic, the final quarter here finished strongly on the back of rising demand. Japan 2.7 Italy 2.7 UK 7.0 DELIVERIES UP IN ASIA AND DOWN IN EUROPE AND AMERICA BMW GROUP DELIVERIES OF VEHICLES BY REGION AND MARKET ³ 33.5 China 13.2 USA 12.3 Germany BMW Group sales in Asia grew solidly in 2020, with deliveries to customers rising by 6.0 % to a total of 986,464 ² BMW, MINI and Rolls-Royce brand vehicles (2019: 930,767 ², ³ units). In China in particular, the BMW Group surpassed the previous year’s figure by 7.4 %, with 778,412 ² units delivered to customers (2019: 724,711 ², ³ units). By contrast, sales performance in Europe was af- fected more severely by the coronavirus crisis. In an unprecedented year marked by restrictions strongly affecting retail business, the BMW Group delivered a total of 913,642 units across the region (2019: 1,081,649 ³; – 15.5 %). The number of vehicles delivered in Germany fell by 13.8 % to 285,019 units (2019: 330,507 ³ units). in 1,000 units Europe thereof Germany thereof UK Americas thereof USA Asia 2 thereof China 2 Other markets Total ² 2020 2019 2018 2017 2016 913.6 285.0 163.2 379.7 307.9 986.5 778.4 45.4 1,081.6 1,097.4 1,101.9 1,089.8 330.5 233.8 472.9 375.7 930.8 724.7 52.2 310.6 236.8 457.1 355.4 871.8 635.8 59.9 296.5 242.4 456.1 358.8 847.7 595.0 59.3 298.5 252.4 453.7 359.5 738.2 508.8 68.3 2,325.2 2,537.5 2,486.1 2,465.0 2,350.0 1 EU including Norway and Iceland. 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2020: 602,247 units, 2019: 538,612 units, 2018: 455,581 units, 2017: 385,705 units, 2016: 311,473 units). 3 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. Comparison of Forecast with BMW GroupReport 2020 Combined Management Report Report on Economic Position BMW BRAND ¹, ² BENEFITS FROM STRONG LUXURY SEGMENT MOST SUCCESSFUL YEAR TO DATE FOR BMW M ¹ The BMW brand finished the year with a total of 2,028,841 units delivered to customers worldwide (2019: 2,184,939 ², ³ units; – 7.1 %), whereby the BMW 8 Series and the BMW X7 contributed in particular to the im- proved model mix. In addition, the 8 Series, the X6 and the X7 proved highly popular, each posting double-digit percentage increases. The highly successful BMW 3 Series model also recorded solid growth during the twelve- month period. Deliveries of the BMW 4 Series declined due to model life cycle factors. NEW BMW BRAND PRODUCTS ¹ The BMW brand introduced a variety of innovative new products over the course of 2020, starting with the BMW X3 plug-in hybrid variant in January, followed by the BMW X1 plug-in hybrid and the BMW 2 Series Gran Coupé in March. The second half of the year saw the launch of model revisions of the BMW 5 Series and the BMW 6 Series Gran Turismo as well as the plug-in hybrid variants of the BMW 3 Series Touring and the BMW X2. The new BMW 4 Series Coupé was launched in October. The fully electric BMW iX3 celebrated its market début in China in November, with other markets to follow in early 2021. Additional hybrid variants of the BMW 5 Series were also added to the product range. Fuel Consumption and CO2 Emissions Information. 1 See 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2020: 602,247 units, 2019: 538,612 units). 3 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see Actual Outcomes. Comparison of Forecast with BMW M GmbH finished the most successful year in its history with a 5.9 % rise in deliveries to 144,231 units (2019: 136,165 ³ units; + 5.9 %), boosted by good contribu- tions from the new high-performance BMW X5 M and X6 DELIVERIES OF BMW VEHICLES BY MODEL VARIANT ¹, ², ³ in units BMW 1 Series BMW 2 Series BMW 3 Series BMW 4 Series BMW 5 Series BMW 6 Series BMW 7 Series BMW 8 Series BMW Z4 BMW X1 BMW X2 BMW X3 BMW X4 BMW X5 BMW X6 BMW X7 BMW i (i3 and i8) BMW total 144 M models. In addition to these two models, BMW M also presented the new BMW M8 Gran Coupé and the M2 CS during the year under report. The new BMW M3 and the BMW M4 Coupé, which both celebrated their world premières in 2020, will be launched as further important models in 2021. 2020 2019 Change in % Proportion of BMW sales volume 2020 in % 164,056 104,859 381,416 38,879 302,564 19,893 46,025 20,703 14,982 230,041 74,229 292,328 55,237 168,674 38,100 48,693 28,162 173,870 115,095 358,643 74,236 353,249 25,170 50,552 12,219 15,819 266,124 91,765 316,883 61,569 165,498 22,116 39,882 42,249 2,028,841 2,184,939 – 5.6 – 8.9 6.3 – 47.6 – 14.3 – 21.0 – 9.0 69.4 – 5.3 – 13.6 – 19.1 – 7.7 – 10.3 1.9 72.3 22.1 – 33.3 – 7.1 8.1 5.2 18.8 1.9 14.9 1.0 2.3 1.0 0.7 11.3 3.7 14.4 2.7 8.3 1.9 2.4 1.4 100 BMW GroupReport 2020 Combined Management Report Report on Economic Position 145 MINI FIGURES DOWN ON PREVIOUS YEAR ¹ ROLLS­ROYCE: FIGURES DOWN IN CHALLENGING ENVIRONMENT AFTER PREVIOUS YEAR’S RECORD PERFORMANCE ¹ DELIVERIES OF ROLLS­ROYCE VEHICLES BY MODEL VARIANT ¹, ² In a highly challenging environment, MINI deliveries worldwide fell to 292,582 units (2019: 347,465 ² units), a drop of 15.8 %. At the same time, the importance of electric mobil- ity for the MINI brand is steadily growing. In addition to the MINI Countryman plug-in hybrid variant, the fully electric MINI Cooper SE has been available since March 2020. The latter generated a great deal of market interest, with 17,580 units delivered to customers by the end of the reporting year. The revised model of the MINI Countryman became available in September. Deliveries of John Cooper Works high-performance models went up by 21.2 % to 20,628 units (2019: 17,025 units ²). The MINI John Cooper Works GP made its market début in March. DELIVERIES OF MINI VEHICLES BY MODEL VARIANT ² Due to the global impact of the coronavirus pan- demic, Rolls-Royce deliveries fell to 3,756 units (2019: 5,100 ² units; – 26.4 %). Nevertheless, the leading marque in the ultra-luxury segment continued to expand its mod- el range, including the launch of the new Rolls-Royce Ghost in September 2020. Rolls-Royce Motor Cars’ Bespoke programme allows customers to select their own personalised configura- tions with maximum flexibility. The marque also offers the Dawn, Ghost, Wraith and Cullinan models in Black Badge variants. Black Badge vehicles can be customised to include special features as well as higher engine per- formance. in units Phantom Ghost Wraith / Dawn Cullinan Rolls-Royce total 2020 360 324 873 2,199 3,756 2019 Change in % 604 662 1,326 2,508 5,100 – 40.4 – 51.1 – 34.2 – 12.3 – 26.4 in units 2020 2019 Change in % MINI Hatch (3­ and 5­door) MINI Convertible MINI Clubman MINI Countryman MINI total 157,040 177,553 24,875 32,958 77,709 30,383 40,683 98,846 292,582 347,465 – 11.6 – 18.1 – 19.0 – 21.4 – 15.8 Proportion of MINI sales volume 2020 in % 53.7 8.5 11.3 26.5 Fuel Consumption and CO2 Emissions Information. 1 See 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous 100.0 years. For further information on retail vehicle delivery data, please see Actual Outcomes. Comparison of Forecast with BMW GroupReport 2020 146 Combined Management Report Report on Economic Position AUTOMOTIVE SEGMENT PERFORMANCE Automotive segment revenues amounted to € 80,853 million (2019: € 91,682 million; – 11.8 %, cur- rency-adjusted: – 10.5 %) and were therefore significantly lower than one year earlier. Lower sales volumes due to the coronavirus pandemic and negative currency effects were partially offset by overall favourable product mix effects brought about by the less pronounced drop in the sale of high-revenue models. Improved selling prices also helped to cushion the impact of the drop in revenues. Segment cost of sales decreased moderately to € 71,456 million compared to the previous year (2019: € 78,062 million; – 8.5 %). The volume-related decline in cost of sales was offset by expenses for various pro- visions, including those recognised in connection with the exhaust gas recirculation cooler and recalls (such as contaminated battery cells in plug-in hybrid vehicles). In addition, lower capitalised overhead costs due to the reduction of inventories accounted for at Group level as well as higher expenses for depreciation and amorti- sation had the effect of increasing segment cost of sales year-on-year. Expenses recognised for workforce measures were largely offset by lower expenses for performance-related remuneration components. The net amount of other operating income and ex- penses improved by € 1,361 million, largely due to the provision recognised in relation with the EU Commis- sion’s ongoing antitrust proceedings in the previous financial year.* * Further information is provided in note 10 to the Group Financial Statements. The segment EBIT margin (profit before financial result as a percentage of revenues) came in at 2.7 % (2019: 4.9 %; – 2.2 percentage points). As forecast in the quar- terly statement to 30 September 2020, the EBIT margin was within the target range of between 0 and 3 % and therefore in line with the revised outlook. In the 2019 Annual Report, a segment EBIT margin within a target range of between 2 and 4 % was forecast. At € 560 million, the Automotive segment’s financial result was significantly up on the previous year (2019: negative € 32 million), mainly reflecting the improved result from at-equity accounted investments described in the section on Group earnings above. Profit before tax for the year amounted to € 2,722 mil- lion and was therefore significantly lower than one year earlier (2019: € 4,467 million; – 39.1 %). The Automotive segment’s RoCE for 2020 was signif- icantly lower at 12.7 % (2019: 29.0 %; – 16.3 percentage points). The decline was mainly attributable to the lower EBIT. The higher volume of capital expenditure in pre- vious years – including amounts invested to expand the product portfolio – also contributed to this development. As forecast for the financial year 2020, RoCE declined significantly and was well below the long-term strategic target valid through 2020 of at least 26 % for the auto- motive segment. BMW GroupReport 2020 147 The main factor influencing the decrease in the net cash inflow from operating activities was the pan- demic-related year-on-year deterioration in operational pre-tax earnings. The change in working capital was posi- tively impacted by the reduction in inventories, while the lower level of trade payables – mainly due to an earlier closure of plants – had an offsetting effect compared to the prior year. The decrease in the net cash outflow from investing activities was mainly attributable to the changes described in the Group Cash Flow Statement. Combined Management Report Report on Economic Position Free cash flow for the Automotive segment was as follows: FREE CASH FLOW AUTOMOTIVE SEGMENT in € million 2020 2019 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Adjustment for net investment in marketable securities and investment funds Free cash flow Automotive segment 8,178 – 3,933 – 850 3,395 9,690 – 7,165 42 2,567 – 1,512 3,232 – 892 828 In the Automotive segment, net financial assets comprised the following: NET FINANCIAL ASSETS AUTOMOTIVE SEGMENT in € million 31. 12. 2020 31. 12. 2019 Change Cash and cash equivalents Marketable securities and investment funds Intragroup net financing Financial assets Less: external financial liabilities* Net financial assets Automotive segment * Excluding derivative financial instruments. 9,522 3,759 7,996 21,277 – 2,815 18,462 9,077 4,470 7,784 21,331 – 3,754 17,577 445 – 711 212 – 54 939 885 BMW GroupReport 2020 Combined Management Report Report on Economic Position MOTORCYCLES SEGMENT MOTORCYCLE DELIVERIES DOWN DURING PANDEMIC YEAR Motorcycles segment deliveries dropped slightly to 169,272 units (2019: 175,162 units; – 3.4 %) due to the global pandemic. Favourable market developments in the fourth quarter, however, caused the total number of motorcycles delivered over the twelve-month period to exceed the revised outlook announced in the quarterly statement to 30 September 2020. DELIVERIES BY MARKET The spread of the coronavirus caused international motorcycle markets to develop unevenly in 2020. Over- all, however, the number of motorcycles delivered by BMW Motorrad worldwide fell only slightly by 2.8 % to 102,026 units (2019: 104,994 units). Germany, however, managed to buck the general trend with deliveries up by 4.7 % to 27,516 units (2019: 26,292 units). Motorcy- cle deliveries in France also edged up, rising by 1.4 % to 17,539 units (2019: 17,300 units). By contrast, figures for Italy (13,918 units; 2019: 15,580 units; – 10.7 %) and Spain (11,030 units; 2019: 12,607 units; – 12.5 %) – both of which were particularly hard hit by the pandemic – dropped sharply year-on-year. 148 Sales in China grew strongly, with motorcycle deliver- ies climbing by 33.7 % to 11,788 units (2019: 8,818 units). Brazil saw a solid increase of 6.4 % to 10,707 units (2019: 10,064 units), also bucking the market trend. By contrast, deliveries in the USA fell moderately to 12,135 units (2019: 13,379 units; – 9.3 %). MARKET LAUNCHES IN 2020: MODEL RANGE REJUVENATED BMW GROUP DELIVERIES OF MOTORCYCLES 164.2 165.6 175.2 169.3 145.0 in 1,000 units 180 90 0 Four new models and several model revisions were 2016 2017 2018 2019 2020 launched in 2020. In February, BMW Motorrad completed its mid-range offering with the market launches of the F 900 R (Roadster segment) and the F 900 XR (Adventure segment). The Ad- venture Sport model S 1000 XR followed in March. In the Heritage segment, the R18 – a cruiser with the largest box- er engine ever built by BMW Motorrad – has been avail- able since September. The model revisions of the highly successful Enduro models R 1250 GS and R1250 GSA as well as that of the R nine T family followed in October. In addition, various special editions were introduced to mark the 40th anniversary of the GS series. BMW GROUP – KEY MOTORCYCLE MARKETS 2020 as a percentage of sales volume Other 38.1 Brazil 6.3 China 7.0 16.3 Germany 10.4 France 8.2 Italy 7.2 USA 6.5 Spain BMW GroupReport 2020 Combined Management Report Report on Economic Position 149 BMW MOTORRAD OFFERS A GLIMPSE INTO THE FUTURE MOTORCYCLES SEGMENT PERFORMANCE In light of the pandemic-related restrictions, BMW Motorrad increasingly turned to virtual formats to showcase its new models over the course of 2020. In November 2020, products such as the Definition CE04 – an electrically powered scooter featuring innova- tive connectivity solutions for urban mobility – were pre- sented online using a virtual format on the BMW Group’s innovation platform #NEXTGen. Numerous series models scheduled for launch in 2021 were also presented online, including the M 1000 RR – BMW Motorrad’s first-ever M model – in September. This was followed in October by the launch of the R18 Classic and in November by the launch of the S 1000 R. With the R18 Classic, BMW Motorrad is expanding its product range in the cruiser segment with the addition of a model that is also ideally suited for touring. Revised models of the G 310 GS, the G 310 R and the R 1250 RT were also presented in October and November. Motorcycles segment revenues were slightly down year-on-year. The main reasons for this development were the pandemic-related drop in sales and unfavourable currency effects, which were partially offset by positive product mix effects. The segment EBIT margin (profit before financial result as a percentage of revenues) came in at 4.5 % (2019: 8.2 %; – 3.7 percentage points) and thus within the most recently forecast target range of between 3 and 5 %. Profit before tax for the year was significantly lower than one year earlier. The RoCE for the Motorcycles segment in 2020 was 15.0 %, significantly down on the previous year’s level (2019: 29.4 %; – 14.4 percentage points), mainly due to the lower level of EBIT. The performance was in line with the outlook com- municated in the quarterly statement to 30 Septem- ber 2020, but well short of the Motorcycles segment’s RoCE target valid through 2020 of 26 %. BMW GroupReport 2020 Combined Management Report Report on Economic Position 150 FINANCIAL SERVICES SEGMENT NEW BUSINESS WITH RETAIL CUSTOMERS MODERATELY DOWN ON PREVIOUS YEAR FINANCIAL SERVICES BUSINESS HELD DOWN BY CORONAVIRUS PANDEMIC In a difficult environment dominated by the global impact of the coronavirus pandemic, business devel- oped significantly less favourably for the Financial Services segment in 2020 compared to one year earlier, a fact reflected in a 24.1 % drop in profit before tax to € 1,725 million (2019: € 2,272 million). As reported in previous quarters, this development was primarily due to the recognition of risk provisioning expenses for credit and residual value risks, thereby reducing reported earnings over the course of the twelve-month period. Due to the impact of the coronavirus pandemic, the segment’s total business volume in balance sheet terms decreased moderately by 6.8 % to € 133,093 million (2019: € 142,834 million). The contract portfolio under management at 31 December 2020 comprised 5,981,928 contracts and was therefore at a similar level to one year earlier (2019: 5,973,682 contracts; + 0.1 %). A total of 1,845,271 new credit financing and leasing contracts was signed with retail customers during 2020, a moderate decrease of 7.9 % on the previous year (2019: 2,003,782 contracts). New credit financing contracts also dropped mod- erately by 6.2 %, while new leasing contracts saw a more pronounced decrease of 11.1 %. Overall, leasing accounted for 32.9 % and credit financing for 67.1 % of new business. By contrast, customer demand for pre-owned vehicles picked up in a number of key sales markets including the USA. Overall, a total of 405,713 credit financing and leasing contracts relating to pre-owned BMW and MINI brand vehicles were signed in 2020, a year-on-year improvement of 1.9 % (2019: 398,144 contracts). The total volume of new credit financing and leasing contracts concluded with retail customers during the twelve-month period amounted to € 57,200 million, mod- erately lower than one year earlier (2019: € 61,353 mil- lion; – 6.8 %). The share of new BMW Group vehicles leased or fi- nanced by the Financial Services segment stood at 49.8 % ¹ in 2020, 2.4 percentage points down on the previous year (2019: 52.2 %), mainly attributable to increased compe- tition in China. The total portfolio of credit financing and leasing con- tracts in place with retail customers edged up year-on- year, rising by 1.9 % to stand at 5,591,799 contracts at the end of the reporting period (2019: 5,486,319 contracts). China remained the region with the highest growth rate, this time coming in with a moderate year-on-year rise of 8.7 %. Figures for the Europe / Middle East / Africa region (+ 2.6 %) and the EU Bank ² region (+ 2.2 %) were also up on the previous year. By contrast, the contract portfolios in the Americas and Asia / Pacific regions fell slightly by 1.1 % and 1.9 % respectively. CONTRACT PORTFOLIO OF FINANCIAL SERVICES SEGMENT in 1,000 units 6,000 5,115 5,381 5,708 5,974 5,982 3,000 0 2016 2017 2018 2019 2020 1 The calculation only includes automobile markets in which the Financial Services segment is represented by a consolidated entity. 2 EU Bank comprises BMW Bank GmbH with its branches in Italy, Spain and Portugal. BMW GroupReport 2020 Combined Management Report Report on Economic Position 151 BMW GROUP NEW VEHICLES FINANCED OR LEASED BY FINANCIAL SERVICES SEGMENT ¹ CONTRACT PORTFOLIO RETAIL CUSTOMER FINANCING OF FINANCIAL SERVICES SEGMENT 2020 FLEET BUSINESS DOWN SLIGHTLY ON PREVIOUS YEAR 49.9 46.7 50.1 52.2 49.8 Leasing 22.4 20.7 21.2 22.3 21.4 in % per region Asia / Pacific 7.8 China 13.0 Financing 27.5 26.0 28.9 29.9 28.4 EU Bank 2 18.6 in % 60 30 0 35.7 Europe / Middle East / Africa Under the brand name Alphabet, the Financial Ser- vices segment’s fleet management business offers leasing and financing arrangements as well as specific services to commercial customers. At 31 December 2020, the segment was managing a portfolio of 704,977 fleet contracts (2019: 717,353 contracts), down slightly by 1.7 % over the twelve-month period. 2016 2017 2018 2019 2020 24.9 Americas 1 Values adjusted retrospectively due to the restatement of delivery figures. See Glossary for the definition of deliveries. 2 With effect from the beginning of the fourth quarter of 2019, the EU Bank comprises BMW Bank GmbH and its branches in Italy, Spain and Portugal. The former subsidiary in France was transferred for organisational purposes to the Europe / Middle East / Africa region in conjunction with strategic realignments. DEALERSHIP FINANCING SIGNIFICANTLY LOWER The total volume of dealership financing was sig- nificantly lower compared to one year earlier, falling by 23.5 % to € 16,241 million at the end of the reporting period (2019: € 21,227 million). BMW GroupReport 2020 152 As described above, the net cash inflow from operat- ing activities recorded by the Financial Services segment for the financial year 2020 resulted primarily from the fact that lower vehicle inventories at dealerships had the effect of reducing receivables from sales financing, mainly in the area of dealership financing. The net cash outflow from financing activities mainly reflected the repayment of loans and the decrease in asset-backed securities financing. Return on equity (RoE) finished at 11.2 %, slightly below the level achieved one year earlier (2019: 15.0 %; – 3.8 percentage points). The decline was primarily attrib- utable to the pandemic-related increase in risk provisions for residual value risks and, to an even greater extent, for credit risks, in both cases causing earnings to deteriorate. The improved risk profile in the fourth quarter, main- ly due to better remarketing outcomes and lower risk provisions for credit losses, contributed greatly to the RoE for the full year 2020 being above the forecast value (“moderate decline”) communicated in the quarterly statement to 30 September 2020. Net cash inflows and outflows for the Financial Ser- vices segment were as follows: Combined Management Report Report on Economic Position FINANCIAL SERVICES SEGMENT PERFORMANCE Revenues generated by the Financial Services seg- ment rose slightly to € 30,044 million (2019: € 29,598 mil- lion; 1.5 %; currency-adjusted: + 2.9 %) due to portfolio growth mainly in Germany, Italy and Switzerland as well as due to higher revenues from the sale of returned lease vehicles. Cost of sales relating to Financial Services business went up by € 1,020 million (2019: € 25,938 million; + 3.9 %). Apart from depreciation on leased vehicles and costs associated with the sale of returned lease vehicles, the increase was driven primarily by additional risk provi- sions related to expected residual value and credit losses. Segment profit before tax amounted to € 1,725 mil- lion (2019: € 2,272 million; – 24.1 %), significantly down on the previous year. NET CASH FLOWS FOR THE FINANCIAL SERVICES SEGMENT in € million 2020 2019 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Cash inflow (+) / outflow (–) from financing activities Net 2,762 424 – 2,508 678 – 5,345 129 5,300 84 8,107 295 – 7,808 594 BMW GroupReport 2020 Combined Management Report Report on Economic Position CHANGE IN RISK PROFILE In 2020, the risk profile across the Financial Services segment’s total portfolio was shaped primarily by the volatility arising due to the coronavirus pandemic and the resulting additional risk provisioning measures rec- ognised in connection with expected credit and residual value risks, mainly provisions and allowances to cover future credit and / or residual value losses. The initial and continuous testing of customer cred- itworthiness is an important aspect of the BMW Group’s credit risk management. As explained in previous quar- ters, for accounting purposes the Financial Services segment has raised credit loss allowances over the course of 2020 in order to reflect the potential longer-term economic impact of the coronavirus pandemic on retail and dealership business. The amounts recognised were based on reasonable and appropriate market-specific information and estimates available at the end of the reporting period. The credit loss ratio on the total credit portfolio amounted to 0.21 % at 31 December 2020, and was there- fore slightly lower than one year earlier (2019: 0.26 %). More specifically, the loss ratio stood at 0.16 % (2019: 0.15 %) for leasing business and 0.31 % (2019: 0.41 %) for credit financing business with retail customers. The over- all improvement in the loss ratio was also attributable to government measures (such as payment moratoriums or restrictions in the receivables management process) implemented in many countries around the world. 153 In the premium segment for pre-owned vehicles, remarketing selling prices for vehicles coming out of leases developed positively overall in 2020. Whereas restrictions on sales and the lower supply of new ve- hicles had a negative impact on demand for new and pre-owned vehicles during the first lockdown, the market saw an upward trend during the second half of the year. Despite this moderate recovery, economic development remains exposed to an increased level of uncertainty due to the pandemic. This point is particularly relevant for the development of prices for pre-owned premium seg- ment vehicles in the short and medium term. Under the prevailing circumstances, the BMW Group sees prices as likely to fluctuate significantly in subsequent quarters, as in 2020, due to a number of factors, including possible changes in demand patterns or the renewal of temporary restrictions that could have an impact on the remarketing process. Accordingly, in 2020 market-specific risk provi- sioning expenses were recognised relating to the vehicle portfolio subject to residual value risks. In line with customary business practice, the Finan- cial Services segment makes provision to take account of significant business risks on an ongoing and compre- hensive basis. Based on current assessments, however, the segment has recognised appropriate levels of provi- sions / allowances to cover residual value and credit risks. Further information on the segment’s risk profile is provided in the section on risks and opportunities and in note 38 to the Group Financial Statements. DEVELOPMENT OF CREDIT LOSS RATIO in % 0.5 0.25 0 0.32 0.34 0.25 0.26 0.21 2016 2017 2018 2019 2020 OTHER ENTITIES SEGMENT / ELIMINATIONS The combined profit before tax in the Other Entities segment and eliminations saw a significant improvement of € 483 million. This was attributable to reversal effects from the leased products portfolios, lower eliminations due to the decline in new leasing business and the lower expected new leasing business resulting from the reduced levels of inventories at dealerships. BMW GroupReport 2020 Combined Management Report Report on Economic Position COMMENTS ON FINANCIAL STATEMENTS OF BMW AG 154 Bayerische Motoren Werke Aktiengesellschaft (BMW AG), based in Munich, Germany, is the parent company of the BMW Group. The comments on the BMW Group and Automotive segment provided in earlier sections apply to BMW AG, unless presented differently in the following section. The Financial Statements of BMW AG are drawn up in accordance with the provisions of the German Commercial Code (HGB) and the relevant supplementary provisions contained in the German Stock Corporation Act (AktG). The key financial performance indicator for BMW AG is the dividend payout ratio (unappropriated profit of BMW AG in accordance with HGB in relation to net profit for the year of the BMW Group in accordance with IFRS). The key non-financial performance indicators are essentially identical and concurrent with those of the BMW Group. These are described in detail in the Report on Economic Position section of the Combined Management Report. Differences in accounting treatments based on HGB (used for the Company Financial Statements) and IFRS (used for the Group Financial Statements) are mainly to be found in connection with the capitalisation of intangible assets, the creation of valuation units, the recognition and measurement of financial instruments and provisions as well as the recognition of deferred tax assets. Differences also arise in the presentation of assets and liabilities and of items in the income statement. BUSINESS ENVIRONMENT AND REVIEW OF OPERATIONS The general and sector-specific environment of BMW AG is essentially the same as that of the BMW Group and is described in the Report on Economic Position section of the Combined Management Report. BMW AG develops, manufactures and sells automo- biles and motorcycles as well as spare parts and accesso- ries manufactured in-house, by foreign subsidiaries and by external suppliers, and performs services related to these products. Sales activities are carried out primarily through branches, subsidiaries, independent dealerships and importers. Mainly due to the impact of the coronavi- rus pandemic, automobile deliveries fell by 305,852 units to 2,249,943 units in the financial year 2020. This figure includes 598,853 units relating to series sets supplied to the joint venture BMW Brilliance Automotive Ltd., She- nyang, an increase of 64,215 units over the previous year. At 31 December 2020, BMW AG employed a work- force of 84,668 people (31 December 2019: 86,700 people, adjusted). With effect from the financial year 2020, the key performance indicator for the size of the workforce comprises only core and temporary employees. The change in presentation is in line with the change in the internal management system, which now focuses on these employee groups. BMW GroupReport 2020 Combined Management Report Report on Economic Position RESULTS OF OPERATIONS BMW AG INCOME STATEMENT in € million Revenues Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other operating income Other operating expenses Result on investments Financial result Income taxes Profit after income tax Other taxes Net profit Transfer to revenue reserves Unappropriated profit available for distribution 155 Revenues fell by € 9,651 million year-on-year, primar- ily reflecting the lower volume of deliveries to customers caused by the coronavirus pandemic. In geographical terms, the scale of decline was most pronounced in the Rest of Europe and USA regions. Revenues totalled € 75,040 million (2019: € 84,691 million), of which Group internal revenues accounted for € 49,348 million (2019: € 57,412 million) or 65.8 % (2019: 67.8 %). Cost of sales went down by 9.2 % to € 63,726 million, mostly due to the lower number of deliveries. Expenses incurred in connection with the exhaust gas recirculation cooler, however, along with a number of other items, had a negative impact in the financial year under report. Gross profit fell by € 3,199 million to € 11,314 million. Overall, selling and general administrative expenses were at a similar level to the previous year. Research and development expenses related mainly to new vehicle models (including the iX3 * as well as the new 4 Series Coupé and Convertible), expenses for the development of reference architectures, drivetrain systems, digital products and automated driving as well as increased expenses in connection with electrification. R&D expenses decreased by 2.4 % year-on-year, in line with activities relating to new model start-ups. * See Fuel Consumption and CO2 Emissions Information. 2020 2019 75,040 – 63,726 11,314 – 4,030 – 2,747 – 5,394 1,237 – 1,250 3,084 – 280 – 214 1,720 – 18 1,702 – 449 1,253 84,691 – 70,178 14,513 – 3,979 – 2,776 – 5,528 1,295 – 2,526 1,858 39 – 767 2,129 – 22 2,107 – 461 1,646 BMW GroupReport 2020 Combined Management Report Report on Economic Position Other operating income decreased to € 1,237 million (2019: € 1,295 million), whereby the main reasons for the change were lower income from the reversal of other pro- visions, offset by higher gains on financial transactions. Other operating expenses decreased to € 1,250 mil- lion (2019: € 2,526 million), mainly due to the prior-year recognition of a provision relating to EU Commission antitrust proceedings. Income from profit transfer agreements with Group companies, reported in the line item Result on invest- ments, increased year-on-year. By contrast, financial result deteriorated by € 319 million, mainly due to lower income from designated plan assets offset against pen- sion obligations. The expense for income taxes related primarily to withholding taxes incurred during the financial year 2020. After deducting the expense for taxes, the Compa- ny reports a net profit of € 1,702 million, compared to € 2,107 million in the previous year. Subject to the shareholders’ approval of the appro- priation of results at the Annual General Meeting, the unappropriated profit available for distribution amounts to € 1,253 million (2019: € 1,646 million). As a percentage of Group net profit, the dividend corresponds to a payout ratio of 32.5 % (2019: 32.8 %). FINANCIAL AND NET ASSETS POSITION BMW AG BALANCE SHEET AT 31 DECEMBER in € million ASSETS Intangible assets Property, plant and equipment Investments Tangible, intangible and investment assets Inventories Trade receivables Receivables from subsidiaries Other receivables and other assets Marketable securities Cash and cash equivalents Current assets Prepaid expenses Surplus of pension and similar plan assets over liabilities Total assets 156 2020 2019 488 12,520 3,826 16,834 5,748 778 18,939 3,849 3,336 6,822 39,472 73 1,261 57,640 405 12,473 3,762 16,640 5,994 964 16,698 3,513 4,109 6,757 38,035 58 1,086 55,819 BMW GroupReport 2020 Combined Management Report Report on Economic Position 157 in € million EQUITY AND LIABILITIES Subscribed capital Capital reserves Revenue reserves Unappropriated profit available for distribution Equity Registered profit-sharing certificates Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities Capital expenditure on intangible assets and proper- ty, plant and equipment in the year under report totalled € 2,790 million (2019: € 3,233 million), down by 13.7 % compared to the previous year. Depreciation and amorti- sation amounted to € 2,646 million (2019: € 2,573 million). Investments increased to € 3,826 million (2019: € 3,762 million) mainly due to a contribution of € 88 mil- lion made to the capital reserves of BMW Bank GmbH, Munich. Inventories decreased to € 5,748 million (2019: € 5,994 million), mainly due to the lower level of finished goods held. Receivables from subsidiaries rose to € 18,939 million (2019: € 16,698 million), mainly reflecting the higher level of intragroup trade receivables. The increase in other receivables and other assets to € 3,849 million (2019: € 3,513 million) was mainly attrib- utable to higher receivables from companies with which an investment relationship exists. The decrease in tax receivables had an offsetting effect. Equity rose by € 86 million to € 15,165 million due to the transfer to other revenue reserves and the issue of shares of preferred stock in conjunction with the BMW AG’s Employee Share Programme. These increas- es were offset by the lower balance of unappropriated profit available for distribution compared to the paid-out dividend for the previous financial year. The equity ratio changed from 27.0 % to 26.3 %. 2020 2019 660 2,239 11,013 1,253 15,165 27 229 10,093 10,322 101 4,785 23,404 221 28,511 3,615 57,640 659 2,210 10,564 1,646 15,079 28 205 8,784 8,989 511 5,751 21,777 187 28,226 3,497 55,819 BMW GroupReport 2020 Combined Management Report Report on Economic Position In order to secure pension obligations, cash funds totalling € 531 million were transferred to BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA), to be invested in plan assets. Plan assets are offset against the related guaranteed obliga- tions. The resulting surplus of assets over liabilities is reported in the BMW AG balance sheet on the line item Surplus of pension and similar plan assets over liabilities. Provisions for pensions increased from € 205 million to € 229 million, after offsetting of pension plan assets against pension obligations. Other provisions increased year-on-year, mainly due to additions to provisions for statutory and non-statutory warranty and product guarantees obligations in connec- tion with the exhaust gas recirculation cooler on the one hand and for selling activities on the other. Liabilities to banks decreased by € 410 million as a result of the repayment of project-related loans. Liabilities to subsidiaries increased to € 23,404 mil- lion (2019: € 21,777 million), mainly in connection with intragroup refinancing. Deferred income increased by € 118 million to € 3,615 million and included mainly amounts for services still to be performed relating to service and maintenance contracts. Liquidity within the BMW Group is ensured by means of a liquidity concept applied uniformly across the Group. This involves concentrating a significant part of the Group’s liquidity at the level of BMW AG. An im- portant instrument in this context is the cash pool based at BMW AG. The liquidity position reported by BMW AG 158 therefore reflects the global activities of BMW AG and other Group companies. OUTLOOK Cash and cash equivalents increased by € 65 million to € 6,822 million, mainly due to surpluses from operating activities and cash inflows from marketable securities held as current assets. Cash outflows from financing ac- tivities and investments in long-lived assets particularly had an offsetting effect. RISKS AND OPPORTUNITIES BMW AG’s performance is essentially dependent on the same set of risks and opportunities that affect the BMW Group and which are described in detail in the Report on Outlook, Risks and Opportunities section of the Combined Management Report. As a general rule, BMW AG participates in the risks entered into by Group companies in proportion to the respective shareholding percentage. At the same time, the result on investments has a significant impact on the earnings of BMW AG. BMW AG is integrated in the Group-wide risk management system and internal control system of the BMW Group. Further information is provided in the section Internal Control System Relevant for Accounting and Financial Reporting Processes within the Combined Management Report. For the financial year 2021, BMW AG expects a divi- dend payout ratio (unappropriated profit of BMW AG in accordance with HGB in relation to net profit for the year of the BMW Group in accordance with IFRS) within a range of between 30 % and 40 % (2020: 32.5 %). Due to its significance in the Group and its close ties with Group companies, expectations for BMW AG with respect to its non-financial performance indicators correspond largely to the BMW Group’s outlook. This is described in detail in the Report on Outlook, Risks and Opportunities section of the Combined Management Report. The outlook for 2021 takes account of the expect- ed impact of the coronavirus pandemic. PricewaterhouseCoopers GmbH Wirtschaftsprü- fungsgesellschaft, Frankfurt am Main, Munich branch, has issued an unqualified audit opinion on the financial statements of BMW AG, of which the balance sheet and the income statement are presented here. The BMW AG financial statements for the financial year 2020 will be submitted to the operator of the electronic version of the German Federal Gazette and can be obtained via the Company Register website. These financial statements are available on the BMW Group’s website at www.bmwgroup.com/ir. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities REPORT ON OUTLOOK, RISKS AND OPPORTUNITIES OUTLOOK The BMW Group’s report on outlook, risks and opportunities presents the expected development in 2021, including the main risks and opportunities from the perspective of the Group’s management. In line with the Group’s internal management system, the outlook covers a period of one year. Risks and opportunities are managed on the basis of a two-year assessment. The Report on Risks and Opportunities therefore addresses a period of two years. The continuous forecasting process within the BMW Group ensures that it is always ready to take ad- vantage of opportunities as they arise, but also to react appropriately to unexpected risks. The principal risks and opportunities are described in detail in the Report on Risks and Opportunities. The matters discussed therein are relevant for all of the BMW Group’s key performance indicators and could result in variances between the outlook and actual outcomes. From the 2020 reporting year onwards, the outlook report will include the following key performance in- dicators in addition to existing ones: the proportion of women in management positions in the BMW Group, the proportion of electrified vehicles to total deliveries and carbon emissions per vehicle produced. Strategy, Goals and Management System. This is in line with the integrated approach used by BMW Group to manage its business systematically on the basis of financial and sustainability targets. ECONOMIC OUTLOOK According to the latest assessment of the Internation- al Monetary Fund (IMF), the global economy is projected to grow by 5.5 % in 2021. Many countries are expected to continue implementing a comprehensive range of monetary and fiscal policy measures in 2021, in a bid to boost economies battered by the coronavirus pandemic. Moreover, post-lockdown catch-up effects could generate additional momentum. Ultimately, however, the actual growth rate will depend heavily on the success of the vac- cination campaigns now underway. Potential new waves of the virus and its mutations pose an additional risk. Further information on political and global economic Report on Risks and Opportunities. risks is also provided in the The eurozone economy is projected to grow by around 4.3 % in 2021. The rate for Germany, however, is likely to be somewhat lower (+ 3.6 %). The economic outlook for the other eurozone member states is very positive in some cases, with countries such as France (+ 5.6 %), Italy (+ 4.6 %) and Spain (+ 5.7 %) expected to post strong GDP growth over the forecast period. 159 The performance of the UK economy in 2021 will not only depend on the impact of the coronavirus pandemic, but also on that of the Trade and Cooperation Agreement reached with the EU. The latest projection for the UK economy is a growth rate of 4.6 %. The US economy is also projected to grow consider- ably by 4.8 % in 2021. The US Federal Reserve is likely to continue pursuing its low-interest-rate policies. At the same time, the stimulus packages announced by US President Biden are expected to provide a boost to the economy. The Japanese economy, which has also been severely affected by the pandemic, is projected to grow by 2.8 % in 2021. China was the only economy to expand slightly in 2020. With a projected rate of 8.4 %, the Chinese econo- my is set to continue its growth course in 2021. CURRENCY MARKETS Currencies of particular importance for the interna- tional operations of the BMW Group are the US dollar, the British pound, the Chinese renminbi and the Japa- nese yen. All of these major currencies are expected to be subject to a high degree of fluctuation in 2021. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities It seems reasonable to assume that the US Federal Reserve will continue its expansionary monetary policies in 2021. The USA’s central bank may also be willing to allow inflation to run at a rate higher than 2 % in future, even over an extended period of time, thereby possibly leading to further depreciation of the US dollar against the euro. Looking at the Chinese renminbi, the close economic ties between the USA and China suggest that the cur- rencies of these two countries will develop more or less synchronously. The renminbi is expected to depreciate slightly against the euro in 2021. In 2021, the value of the British pound will be large- ly determined by the consequences of the agreement reached between the UK government and the EU. In view of the prevailing uncertainties, the exchange rate of the relatively weak pound is expected to move sideways over the course of 2021. The central bank in Japan is unlikely to change its highly expansionary monetary policy in 2021. For this reason, the euro / yen exchange rate is also expected to remain more or less stable. The currencies of numerous emerging markets could come under pressure against the US dollar and the euro due to the ongoing coronavirus pandemic. This applies in particular to countries such as Russia, Brazil and India. 160 Change in registrations % + 4.2 – 0.6 + 9.1 + 9.0 + 4.3 + 3.2 + 9.8 + 7.6 + 6.0 + 7.7 INTERNATIONAL AUTOMOBILE MARKETS INTERNATIONAL AUTOMOBILE MARKETS Europe thereof Germany thereof France thereof Italy thereof Spain thereof UK USA China Japan Total The pandemic will continue to have a perceptible impact on international automobile markets in 2021. Although new registrations are expected to rise to around 78 million units (+ 7.7 %), overall sales are likely to remain significantly lower than before the coronavirus crisis. Europe’s automobile markets are forecast to see sig- nificant growth (12.4 million units; + 4.2 %), albeit still below pre-crisis levels. The latest forecast for Germany indicates that new registrations may even decline slight- ly (2.9 million units; – 0.6 %). By contrast, considerable growth is predicted for France (1.8 million units; + 9.1 %), Italy (1.5 million units; + 9.0 %) and Spain (approximately 0.9 million units; + 4.3 %). Likewise, new registrations in the UK are forecast to rise in 2021 (1.7 million units; + 3.2 %). The negative trend in the USA is also expected to come to an end, at least for the time being. Based on current forecasts, the US market is set to grow in 2021 and reach a total of 16.0 million units (+ 9.8 %). According to current estimates, passenger car regis- trations in China are likely to rise sharply year-on-year (22.0 million units; + 7.6 %). The Japanese market is also expected to show a sig- nificant upward trend in 2021 (around 4.7 million units; + 6.0 %). INTERNATIONAL MOTORCYCLE MARKETS The BMW Group expects worldwide motorcycle mar- kets in the 250 cc plus class to grow slightly overall in 2021. After contracting in 2020, demand in Spain is likely to see a solid recovery. Market volumes are expected to be slightly higher in Italy and slightly lower in Germany and France. A slight contraction is also forecast for the US market. Brazil is expected to bounce back with a solid recovery. The market in China is set to grow sharply again in 2021. As in the past year, motorcycle market demand will continue to be influenced by the course of the pan- demic and its impact on the global economy in 2021. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 161 INTERNATIONAL INTEREST RATE ENVIRONMENT Trade relations between the USA and China should improve under the new US administration, whilst still remaining strained. Low inflation rates give central banks sufficient headroom to continue their expansion- ary monetary policies. However, the rise in inflation rates since the beginning of the year, especially in the eurozone, indicates that consumer prices are also likely to increase again in the course of 2021. Within the eurozone, the course of the pandemic and delays in the vaccine rollout suggest that the pathway back to normality could take some time yet. Any further lockdowns during the first half of the year could damp- en economic growth and hold down inflation figures, potentially leaving the ECB with little flexibility to raise interest rates in 2021. The UK’s economy is not expected to improve signif- icantly during the first quarter. Following the initial suc- cess of the vaccination programme, the UK government is now looking to ease the lockdown on a cautious step- by-step basis. It remains to be seen, however, to what extent the virus mutation circulating there could cause the situation to deteriorate again. In light of the fiscal and monetary policy measures taken by the government and the Bank of England, the economy is not expected to see an upturn before the summer. It is therefore safe to assume that the Bank of England will keep interest rates stable for the time being. In the USA, the House of Representatives has ap- proved President Biden’s 1.9 trillion dollar stimulus pack- age aimed at countering the impact of the pandemic on the economy. Despite inflation being expected to rise in 2021, the Federal Reserve seems determined to continue its current programme of quantitative easing and leave the benchmark interest rate unchanged. The Chinese central bank is expected to maintain an unchanged course. Despite strained trade relations with the USA, economic growth in China is likely to gather additional pace in 2021. CONSEQUENCES FOR THE BMW GROUP Future developments on international automobile markets also have a direct impact on the BMW Group. Challenges in the competitive environment as well as the course of the coronavirus pandemic are likely to have a significant impact on sales volumes. Due to its global business model, the BMW Group is well placed to capitalise on opportunities that present themselves, even at short notice. Coordination between the Group’s sales and production networks also enables it to even out the impact of unforeseeable developments in various regions. Moreover, investments in key future-oriented markets form a sound basis for further growth, while simultaneously strengthening the global presence of the BMW Group. An unpredictable political environment may cause actual economic growth in some regions to deviate from expected trends and developments. Areas affected in this context include trade and customs policies, security and potential additional international trade conflicts. Furthermore, risks continue to exist for upstream processes, including possible bottlenecks due to sup- ply shortages arising in regions that could become the focus of a pandemic. Due to the high demand on inter- national semiconductor markets, there is currently an additional risk of bottlenecks in the supply of electronic components to production. Risks and opportunities relating to purchasing The BMW Group continues to observe these develop- ments and is ready to implement all necessary measures quickly and effectively. ASSUMPTIONS USED IN THE OUTLOOK The report on outlook, risks and opportunities con- tains forward-looking statements. These are based on the BMW Group’s expectations and assessments and may be influenced by unforeseeable events. As a result, actual outcomes can deviate either positively or negatively from the expectations described below, among other things due to changes in the political and economic environ- ment as well as the further course of the coronavirus pandemic. Report on Risks and Opportunities. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 162 The following outlook relates to a forecast period of one year and is based on the composition of the BMW Group during that time. The outlook takes account of all information available at the time of reporting and which could have an effect on the overall performance of the Group. The expectations contained in the outlook are based on the BMW Group’s forecast for 2021 and reflect its most recent status. The basis for the preparation of and the principal assumptions used in the forecasts – which consider the consensual opinions of leading organisations, such as economic research institutes and banks – are set out below. The BMW Group’s outlook takes account of these assumptions. The coronavirus pandemic will continue to have an impact on business performance in 2021 and hence on the results of operations, financial position and net assets of BMW AG and the BMW Group. Due to the continuing uncertainty surrounding the course and potential conse- quences of the pandemic going forward, it is difficult to make an accurate forecast of the BMW Group’s business performance in 2021. For the forecast year 2021, the BMW Group is working on the basis that the original widespread prevalence of the infection that was the dominant feature of 2020 will be replaced by recurrent, regional hotspots. The outlook has been therefore been drawn up on the assumption that, outside of hot spots, the overall incidence of infection can be controlled worldwide. The successive launch of vaccination cam- paigns and improved vaccine supply should also have an increasingly positive effect in 2021. Uncertainties remain, however, as mutated strains of the virus emerge and spread, raising questions about the efficacy of currently available vaccines in combat- ting mutations. It is not possible to assess the extent to which such risks could impact the global economy, the financial markets and therefore the BMW Group and, for this reason, they have not been taken into account in the outlook. With demand on international semiconductor mar- kets currently at a high level, the supply situation for electronic chips has become increasingly tense, which could result in supply bottlenecks affecting the availabili- ty of semiconductor components required for production. The BMW Group is monitoring the situation closely. Should the situation deteriorate further and significant supply bottlenecks occur, it cannot be ruled out that this will have an adverse impact on the outlook. The BMW Group expects that the tensions between the USA and China will persist after the change in the US administration and remain a source of uncertainty. However, based on up-to-date assessments, customs tariffs are not expected to rise. Current estimates and assumptions for the finan- cial year 2021, to the extent already known to the BMW Group, have been taken into account and described in the outlook report. Beyond these assessments, no fur- ther significant opportunities and risks are known or can be estimated at the present time. However, it cannot be ruled out that the assumptions underlying estimates may need to be changed over the course of the year. OUTLOOK FOR THE BMW GROUP OVERALL ASSESSMENT BY GROUP MANAGEMENT Despite the volatile situation brought about by the global spread of coronavirus, the BMW Group expects business to develop positively and the risk situation to remain stable in the financial year 2021. New automobile and motorcycle models as well as individual mobili- ty-related services are expected to generate momentum. Group profit before tax is therefore expected to rise significantly during the outlook period. The Automotive segment is expected to record a solid year-on-year increase in the number of BMW, MINI and Rolls-Royce brand vehicles delivered to customers. At the same time, the BMW Group is targeting a further signif- icant reduction in carbon emissions in the new vehicle fleet ¹, calculated using the revised base ². In addition to improvements achieved through developments in highly efficient combustion engines, the expected reduction also reflects the significant increase in the forecast proportion of electrified vehicles sold. According to the planning, carbon emissions per vehicle produced are likely to fall moderately. The Automotive segment’s EBIT margin is set to recover in 2021, most likely finishing within a range of 6 to 8 % and thus causing the segment RoCE to improve significantly. 1 EU including Norway and Iceland; since 2018 figure based on WLTP (Worldwide Harmonised Light Vehicles Test Procedure) and converted back to the New European Driving Cycle (NEDC). 2 Efficiency indicator calculated on the basis of Scope 1 and Scope 2 emissions (i. e. a market-based method according to GHG protocol Scope 2 guidance that excludes climate-changing gases other than carbon dioxide) of vehicle production excluding motorcycles, adjusted for CHP losses and divided by the total number of vehicles produced, including the joint venture BMW Brilliance Automotive Ltd., Shenyang, but excluding vehicles produced by the contract manufacturers Magna Steyr and Nedcar. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 163 The RoE in the Financial Services segment is expect- ed to finish within a range of 12 to 15 %. The switch to a forecast corridor for RoE allows for a narrower and therefore more precise outlook. BMW GROUP KEY PERFORMANCE INDICATORS The Motorcycles segment is expected to record a solid increase in deliveries to customers. The EBIT margin is predicted to lie within the target range of 8 to 10 %, en- abling the segment to record a significantly higher level of RoCE than one year earlier. GROUP Profit before tax Workforce at year-end Share of women in management positions in the BMW Group The proportion of women in management positions in the BMW Group is expected to increase slightly. AUTOMOTIVE SEGMENT Deliveries to customers 2 The targets described above are to be met with a slightly lower number of employees. Ongoing uncertainty, particularly regarding the fur- ther course of the coronavirus pandemic, macroeconomic and political developments as well as international trade and customs policies, could cause economic conditions in many regions to differ quite considerably from expected trends and developments. All these factors could have significant effects on the overall business performance of the BMW Group. Furthermore, the Group’s actual busi- ness performance may also differ from current expecta- tions as a result of the risks and opportunities discussed below in the Report on Risks and Opportunities. Share of electrified vehicles in deliveries CO2-Emissions EU New Vehicle Fleet 3 CO2 emissions per vehicle produced 4 EBIT margin Return on capital employed 5 MOTORCYCLES SEGMENT Deliveries to customers EBIT margin Return on capital employed 5 FINANCIAL SERVICES SEGMENT Return on equity 2020 reported 2020 adjusted 2021 Outlook1 € million % units % g / km tons % % 5,222 120,726 17.8 2,324,809 8.3 996 0.23 2.7 12.7 units 169,272 % % % 4.5 15.0 11.2 – – – – – Significant increase Slight decrease Slight increase Solid increase Significant increase 1357 Significant decrease 0.31 8 Moderate decrease – – – – – – between 6 and 8 Significant increase Solid increase between 8 and 10 Significant increase between 12 and 15 Glossary for the definition of terminology / ranges used in forecasting. 1 Based on adjusted outlook; see 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2020: 602,247 units). 3 EU including Norway and Iceland; since 2018 value converted WLTP (Worldwide Harmonised Light Vehicles Test Procedure) basis. 4 Efficiency indicator calculated from Scope 1 and Scope 2 CO2 emissions (market-based method according to GHG Protocol Scope 2 Guidance. Other climate-impacting gases than CO2 not included) from vehicle production, without motorcycles, minus CHP losses divided by the total number of vehicles produced, incl. BMW Brilliance Automotive Ltd. joint venture, Shenyang, not including the vehicles from the Magna Steyr and Nedcar contract production plants. 5 Unlike the other key performance indicators, the RoCE forecast for the Automotive and Motorcycles segments is based on the change in percentage points. 6 Value (internal calculation) takes account of flexibilities as defined in regulatory requirements: phase-in with 5 g / km, supercredits BEV / PHEV with 7.5 g / km and eco-innovations with 2.4 g / km. 7 The CO2 fleet emissions figure of 99 g / km for the year 2020, as measured internally, is based on NEDC and takes due account of permitted offsetting factors (phase-in, super-credits and eco-innovations). The CO2 fleet emissions forecast for 2021 is based on WLTP in accordance with legal requirements and includes fewer offsetting factors due to the fact that phase-in is no longer permitted for 2021 and the BMW Group fully utilised the maximum amount of super-credits in 2020. For better comparability of the CO2 fleet emissions forecast for 2021 and the fleet value for 2020, the 2020 figure has been converted internally from an NEDC basis (including offsetting factors) to a WLTP basis (excluding offsetting factors). The figure derived for 2020 serves only to enable reconciliation with the 2021 figure: it is not official and does not correspond to legislation that was in place in 2020. 8 From 2021, CO2 emissions according to Scope 1 and 2 include not only production emissions but also emissions at locations not allocated to production, e. g. research centres, distribution centres, office buildings. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 164 RISKS AND OPPORTUNITIES OVERALL ASSESSMENT OF THE RISK AND OPPORTUNITIES SITUATION ORGANISATION OF RISK MANAGEMENT As a globally leading provider of premium automo- biles, motorcycles, mobility services and financial services, the BMW Group is exposed to an array of un- certainties and changes. To ensure growth, profitability, efficiency and continued sustainability going forward, the BMW Group needs to take well calculated risks and make full use of any opportunities that present themselves. The management of opportunities and risks is essen- tial in order to respond in an appropriate manner to any changes that occur in political, economic, technical or le- gal conditions. The BMW Group has put a comprehensive risk management system in place to effectively with risks as they arise. The aim of the risk management system is to identify, assess and actively manage any risks that could threaten the attainment of the Group’s corporate targets. As part of that process, individual and cumulative risks capable of posing a threat to the profitability of the business are monitored and managed. All opportunities and risks expected to materialise have already been addressed in the Outlook Report. The following sections focus on potential future developments or events that could result in a positive (opportunity) or a negative deviation (risk) from the outlook for the BMW Group. The assessment of the overall risk situation is based on a consolidated view of all significant individual risks. The overall risk situation for the BMW Group has wors- ened moderately compared to one year earlier, reflecting – in the worst-case scenario – a significant deterioration in the global economic situation due to the coronavirus pandemic. The BMW Group has already adjusted its sales and production planning to take account of expected macroeconomic developments and incorporated their impact in the outlook. Should the effect of the pandemic prove less severe in 2021 and if the economy recovers more quickly than expected, opportunities for both rev- enues and earnings could arise. Management does not see any threat to the BMW Group’s status as a going concern. Similar to one year earlier, the current set of risks to the BMW Group are considered manageable. If these risks – or opportu- nities – were to materialise, they could have an impact on underlying key performance indicators, thus causing deviations from the outlook. The BMW Group’s finan- cial resources are stable, with liquidity requirements currently covered by existing liquidity and available financing instruments. In addition to the risks described below, unforeseen events could have a negative impact on business opera- tions and hence on the BMW Group’s results of opera- tions, financial position and net assets as well as on its reputation. Risk management is organised as a decentralised, Group-wide network and steered by a centralised risk management function. Every BMW Group division is rep- resented by Network Representatives. This formal struc- ture reinforces the network’s visibility and underlines the importance of risk management within the BMW Group. The responsibilities and duties of the centralised risk management function and the Network Representatives are clearly documented and understood. Significant risks reported from within the network are firstly presented for review to the Risk Management Steering Committee, which is chaired by Group Controlling. After review, any significant risks identified are reported to both the Board of Management and the Supervisory Board’s Audit Committee. Other functions such as Compliance and Human Rights and the Internal Control System serve as key interfaces to the risk management system. In its capacity as an independent control body, Corporate Audit reviews the risk manage- ment system established by the Board of Management on an annual basis. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 165 RISK MANAGEMENT IN THE BMW GROUP RISK MEASUREMENT Group-wide risk management Identification Analysis and Measurement Effectiveness Practicability Compliance Committee Reporting / Monitoring Completeness Controlling Risk Manage- ment Steering Committee Supervisory Board Board of Management Measures Group Audit Internal Control System The BMW Group utilises standardised methods to assess risks. All significant risks are measured using value-at-risk models and assessed on the basis of uni- form loss distribution metrics, thereby enabling better comparability of risks for both internal and external reporting purposes. The overall effect of risks on the results of operations, financial and net assets position is referred to in the following sections uniformly as “earnings impact”. Risks are classified both according to their potential impact on earnings (worst-case scenario) and according to the risk amount (average earnings impact, taking into account the probability of occurrence). The impact of risks is measured and reported net of any mitigation measures that are already taking effect (net basis). Risks are measured over a two-year assessment period. According to Group-wide guidelines, every employee and manager has a duty to report risks via the relevant reporting channels. The key elements of an effective risk culture are embedded in the BMW Group’s core values, in its risk management guidelines and in the risk strategy. New information and new requirements are continuous- ly fed into the BMW Group’s risk management system, thereby ensuring its ongoing development. Training programmes and informational events are regularly con- ducted across the BMW Group, particularly within the risk management network. These measures are essential ways of preparing those involved in the process to comply with any new or additional requirements. The risk management process applies across the entire Group and comprises the early identification, analysis and assessment of risks, the coordinated use of appropriate management tools and the monitoring and evaluation of the measures taken. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 166 The potential earnings impact in the worst-case sce- MONITORING RISK-BEARING CAPACITY nario is classified as follows: Class Low Medium High Potential earnings impact in a worst-case scenario > € 0 – 500 million > € 500 – 2,000 million > € 2,000 million The following criteria apply for the purpose of clas- sifying the risk amount: Class Low Medium High Risk amount > € 0 – 50 million > € 50 – 400 million > € 400 million The earnings impact of risks and opportunities is presented separately without offsetting. If no specific reference is made, opportunities and risks relate to the Automotive segment. The scope of entities covered in the report on risks and opportunities corresponds to the scope of consolidated entities included in the BMW Group Financial Statements. Group-wide effects and trends can be identified by aggregating all significant risks at Group level using value-at-risk models. For this purpose, the potential earnings impact of the risks (confidence level: 99 %) is aggregated, taking correlation effects into account. In or- der to assess the risk-bearing capacity of the BMW Group, the aggregated amount of risks is compared with the risk cover amount (equity recognised for accounting purpos- es). A limit system for various risks helps monitor the risk-bearing capacity. MANAGING NON-FINANCIAL RISKS AS REPORTED IN THE NFS Alongside comprehensive risk management, sus- tainability constitutes a core strategic principle of the BMW Group. Risks resulting from sustainability issues are generally identified via the Group-wide risk man- agement network. When analysing sustainability-related opportunities and risks, the physical risks associated with climate change (e. g. disruption of supply chains due to natural hazards) and transition risks (such as meeting emissions requirements) are also assessed. In accordance with § 289 c of the German Commer- cial Code (HGB) risks that could have an impact on the non-financial aspects referred to in the Act are reviewed as part of the reporting process. Significant risks in this context are defined as those stemming from business activities, business relationships and products and / or services provided by the BMW Group that are highly likely to have a seriously adverse impact. No significant non-financial risks were identified during the year under report. OPPORTUNITIES MANAGEMENT A dynamic market environment also gives rise to op- portunities. Identifying these opportunities is an integral part of the BMW Group’s strategic planning process. The Group’s range of products and services is continually reviewed on the basis of these analyses, resulting, for example, in new product projects being presented to the Board of Management for consideration. In order to compete successfully in the long term and at the same time effectively help play an active role in achieving the goal of climate neutrality – as called for by politicians and desired by society in general – the Group’s vehicle platforms are designed to operate flexibly with various types of drivetrain, enabling it to respond more swiftly to changing customer needs. The continuous monitoring of key business processes and strict cost controls are also essential for ensuring high levels of profitability and return on capital employed. Once identified, opportunities are acted upon in the relevant operational areas on a decentralised basis. The importance of opportunities for the BMW Group is classified on a qualitative basis in the categories “signif- icant” and “insignificant”. Probable measures aimed at increasing profitability are already incorporated in the outlook. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities RISKS AND OPPORTUNITIES The following table provides an overview of signif- icant risks and opportunities and indicates their level of importance for the BMW Group. Overall, no risks capable of threatening the continued existence of the RISKS AND OPPORTUNITIES Macroeconomic risks and opportunities Strategic and sector risks and opportunities Changes in legislation and regulatory requirements Market developments Risks and opportunities relating to operations Production and technology Purchasing Sales network Information, data protection and IT Financial risks and opportunities Foreign currencies Raw materials Liquidity Other financial risks Pension obligations Legal risks 167 BMW Group were identified either at the balance sheet date or at the date on which the Group Financial State- ments were drawn up. Due to the particular features of the business model applied for the Financial Services segment, risks and opportunities relating to it are pre- sented separately on Risk Management System in the Financial Services Segment Risks Opportunities Classification of risk amount Change compared to prior year Classification Change compared to prior year High High High High High Low High High Medium Medium Medium High Medium Stable Significant Increased Stable Stable Insignificant Insignificant Stable Insignificant Increased Insignificant Stable Stable Insignificant Insignificant Increased Stable Increased – Stable Stable Significant Significant – Significant Significant – Stable Stable Stable Stable Stable Stable Stable Stable – – Stable – MACROECONOMIC RISKS AND OPPORTUNITIES Economic conditions have an impact on business performance and hence the level of earnings generated by the BMW Group. Unforeseen disruptions in global economic relations can have highly unpredictable effects. Macroeconomic risks due to sales volume fluctuations could have a high earnings impact over the two-year assessment period. The risk amounts attached to macro- economic risks are classified as high. Currently, the greatest risk for the global economy is the further spread and the consequences of the coro- navirus pandemic. Considerable uncertainty remains regarding the dynamics of the coronavirus pandemic going forward, despite the current decline in infection figures. The situation is highly dependent on the pro- gress and success of the vaccination campaigns currently underway. It is not currently possible to predict with any degree of certainty the point in time from which a high vaccination rate could significantly mitigate the course of the pandemic. As a result, restrictions to public life and regional lockdowns are likely to be a continued source of uncertainty for consumers and weigh heavily on the sales situation across all markets. The BMW Group is monitoring the situation on a continuous basis and tak- ing appropriate measures as required. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 168 However, risks that existed prior to the outbreak of the pandemic still remain, despite being partially displaced in the public perception. The trade conflict between the USA and China is likely to be an enduring topic, despite the inauguration of the new US president. However, the focus could well shift from pure tariff increases to import and export restrictions on certain technologies. The po- tential introduction of further trade restrictions on both sides could have a significantly adverse impact on the BMW Group’s business operations due to less favourable conditions for importing vehicles. In the wake of ongoing climate change, natural disasters could occur more frequently and impact the BMW Group in a variety of ways. For instance, economic activity in the affected regions could be negatively influ- enced. For consumers, this would mean a loss of income and the threat of unemployment and have a negative effect on sales. In the context of its “Adaptation to Climate Change” project, the BMW Group is preparing for numer- ous possible scenarios and has taken the step of systemat- ically integrating the reporting of opportunities and risks associated with climate change within this report. Other risks to the economy include political instability in Belarus, the conflict between Armenia and Azerbaijan, political unrest in the USA, the impact of the change in Hong Kong’s status, and uncertainty regarding the sus- tainability of debt levels in some European countries. and its economic partners could result in significantly stronger sales volume growth, reduced competitive pressures and improved pricing. Against this backdrop, macroeconomic opportunities capable of generating a sustainably positive impact on earnings are currently classified by the BMW Group as significant. STRATEGIC AND SECTOR-SPECIFIC RISKS AND OPPOR- TUNITIES; CHANGES IN LEGISLATION AND REGULATORY REQUIREMENTS The short-term introduction of more stringent legis- lation and regulations, particularly with regard to emis- sions, safety and consumer protection as well as regional, vehicle-related purchase and usage taxes, represents a significant risk for the automobile industry. Country- and sector-specific trade barriers can also be subject to change at short notice. Any sudden tightening of regula- tions in these areas could necessitate significantly higher investments and ongoing expenses or exert influence on customer behaviour. If the risk of market disruption due to unforeseeable short-term changes in legislation and regulations were to materialise, this could have a highly negative earnings impact over the two-year assessment period and beyond. The resulting risk amounts are there- fore classified as high. If the coronavirus is overcome with the help of ef- fective vaccines over the course of 2021, opportunities could arise for the BMW Group in terms of revenues and earnings. Significantly higher GDP growth in our strongest sales regions, positive signals in Europe and the USA on the back of new economic stimulus packages, and a de-escalation of the trade conflict between the USA At present, the BMW Group sees a continuous trend towards increasingly stringent vehicle emissions regula- tions, particularly for conventional drivetrain systems. The BMW Group is addressing this risk primarily by sys- tematically electrifying its entire portfolio of brands and models: based on its existing plans, the BMW Group will already have 25 electrified models on the road by 2023. At the same time, the Group is pressing ahead with the continued development of highly efficient combustion engines in order to further reduce fuel consumption and emissions. Additional risks could result from the tightening of existing import and export regulations, which could, in turn, lead primarily to additional expenses, but also complicate the import and export of vehicles and parts. Changes in trade policies could also have a positive impact on the BMW Group’s earnings in the short to medium term. Any reduction in tariff barriers, import restrictions or direct excise duties could result in lower manufacturing costs or enable products and services to be offered to customers at more attractive prices. Further opportunities to improve the BMW Group’s earnings performance due to changes in legislation and regulatory requirements compared to the outlook are classified as insignificant. Market developments Apart from economic factors and sector-specific political conditions, increasingly fierce competition among established manufacturers and the emergence of new market competitors could also have effects that are difficult to predict. Unforeseen consumer preferences and changes in brand perceptions can also give rise to both opportunities and risks. If market risks were to materialise, they could have a high earnings impact over the two-year assessment period. The risk amount is classified as high. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 169 A potential further intensification in terms of com- petition could put pressure on sales volumes, selling prices and margins. For instance, the BMW Group could be confronted with supply and demand distortions in the transition from conventionally powered vehicles to alternative drivetrain concepts, despite complying with legal requirements. Customer behaviour can also alter due to changes in attitudes, values, environmental factors and fuel or energy prices. The flexibility of the BMW Group’s sales and production processes makes it possible to mitigate risks and take any opportunities arising in corresponding market and product segments. Local product usage restrictions in specific sectors could have a limiting impact on the BMW Group’s sales in individual markets. In some urban areas, for instance, local measures have been, or are being, introduced, including entry restrictions, congestion charges or, in some situations, highly restrictive registration rules. These could influence local demand for the BMW Group vehicles affected and hence have a negative impact on sales, margins and, possibly, the residual values of these vehicles. Among other measures, the BMW Group is ad- dressing this risk by broadening its range of electrified vehicles and mobility services. Moreover, the BMW Group continuously monitors its sales markets with the aim of increasing added value for customers and making the most of opportunities in terms of sales volume growth and pricing. The further development of the product and mobility portfolio as well as expansion in growth regions offer the greatest medium- to long-term growth opportunities for the BMW Group. This depends above all on the Group’s ability to develop innovative products and services and bring them to market. If the negative impact of the cur- rent competitive situation is reduced more quickly than expected, additional opportunities are likely to arise for the BMW Group. Compared to the assumptions made in the outlook, the BMW Group does not expect these opportunities to have a significant earnings impact over the two-year assessment period. RISKS AND OPPORTUNITIES RELATING TO OPERATIONS Risks and opportunities relating to production and technologies Risks relating to production processes and fields of technology can lead to unplanned production interrup- tions or additional costs due to vehicle recalls. If any such risks were to materialise, they could have a high earnings impact over the two-year assessment period. The corresponding risk amounts are classified as high. Potential causes of production downtimes include fires, infrastructural damage, machine and tooling break- downs, IT malfunctions, temporary disruptions in utility supply or transportation and logistical disruptions, or the outbreak of a pandemic. All production units have a variety of measures in place to deal with potential pro- duction interruptions and downtimes, some of which are already integrated in the planning process and can be implemented operationally with a high degree of flexibil- ity. These measures have an effect on both the amount of damage and the probability of the risks occurring. Technical fire protection, rapid response by on-site fire brigades and appropriate employee training are the key strategies for preventing and reducing any potential damage from fires. Furthermore, policies are in place with insurance companies of high credit standing to cover the risk of fire-related events that lead to significant production interruptions at the Group’s or at suppliers’ premises. The BMW Group’s successful business continuity management concept helps minimise downtimes in the event of a production stoppage and make up for lost production volumes as quickly as possible. Flexible working time models and working time accounts designed to manage employee deployment, coupled with the ability to build individual vehicle mod- els or engine types with a high degree of flexibility at other BMW Group plants as required, make a significant contribution to ensuring that fluctuations in demand can be met. Detect-analyse-respond measures have been rolled out to counter the threat of targeted cyberattacks, re- flecting the fact that such attacks could cause damage to production facilities, resulting in long downtimes and substantial losses. Vehicles may be damaged or destroyed by natural hazards or other risks during transport from production plants to the sales regions. Due to the growing number of major claims, deductible amounts included in trans- port insurance policies have risen significantly. In fact, as more and more insurance companies withdraw from this market segment, there is a risk that it could become economically unviable to take out insurance, as a result of which the BMW Group would be required to bear the losses itself. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 170 The BMW Group recognises appropriate provisions for statutory and non-statutory warranty obligations. It cannot be ruled out, however, that additional costs arise in conjunction with vehicle recalls that are either not covered or not fully covered by provisions. Despite thor- ough quality assurance processes, such risks can always arise if the materials and / or processing procedures used prove insufficient, in some cases years after a product is launched. Further information on risks in conjunction with provisions for statutory and non-statutory warranty obligations is provided in note 33 to the Group Financial Statements. The BMW Group sees opportunities relating to production processes and fields of technology primarily in the competitive edge gained by mastering new and complex technologies. Innovations in the technologies deployed and in IT in general are driving the pace of digitalisation in production processes. Given the long lead times involved in developing new products and processes, additional opportunities are not expected to have a significant earnings impact for the BMW Group during the outlook period. Risks and opportunities relating to purchasing Purchasing risks relate primarily to supply risks caused by the failure of a supplier to deliver as well as to threats to BMW Group-relevant know-how within the supplier network. Production problems at supplier level could lead to consequences caused by increased expenditure for the BMW Group due to production inter- ruptions and a corresponding reduction in vehicle sales. The BMW Group deploys an extensive set of checks and proactive management measures to tackle the challenges currently facing the automotive supply industry. If pur- chasing risks were to materialise, they could have a high earnings impact over the two-year assessment period. The risk amount attached to purchasing risks is classified as high. Close cooperation between carmakers and suppliers in the development and production of vehicles and the provision of services generates economic benefits, but also raises levels of dependency. Potential reasons for the failure of individual suppliers to deliver include, in particular, IT-related risks, non-compliance with sus- tainability or quality standards and the occurrence of natural hazards and fires. Insufficient financial capacity on the part of individual suppliers could also jeopardise supplies to production plants. In this context, additional countermeasures have been put in place in the wake of the coronavirus pandemic. Moreover, any major deterioration of a particular country’s national security situation is incorporated in the risk measurement process as a potential reason for the failure of a value and / or supply chain. Any risks potentially arising for individual suppliers and / or entire supply chains in conjunction with the need to adapt to the consequences of climate change are continually as- sessed on the basis of in-house expert knowledge, taking scientific findings into due account. The growing complexity of the supplier network, par- ticularly in the case of sub-suppliers whose operations can only be indirectly monitored by the BMW Group, is a further potential cause of downtimes at supplier loca- tions. For instance, there is a risk that strong demand on international semiconductor markets gives rise to bottlenecks in the supply of electronic components for production. The increased threat of cyberattacks along the entire value chain also affects supply security as well as the ability to protect know-how relevant to the BMW Group. To ensure a uniform level of IT security for all those involved along the value and supply chain, the BMW Group impresses on suppliers the importance of obtaining appropriate IT security certification. By monitoring and developing global supplier mar- kets, the BMW Group continuously strives to become more competitive by working together with the world’s best product and service providers. As part of its supplier preselection process, the BMW Group checks for com- pliance with the sustainability standards established for its supplier network. This includes due consideration of and compliance with internationally recognised human rights and applicable labour and social standards. The level of carbon emissions generated by prospec- tive suppliers is taken into account as an independent criterion when processing tenders and awarding new contracts. This approach ensures that first-tier suppliers regard the issue of carbon emissions – alongside other factors – as relevant for their business and, in turn, set targets for other supply chain levels in which they are involved. The aim is to reduce carbon emissions across all relevant supply chains on the basis of constructive cooperation with suppliers. It is important to point out, however, that the BMW Group depends on receiving accurate information from suppliers in this regard. Furthermore, fire risks at series suppliers are eval- uated by means of questionnaires and selective on-site inspections. Suppliers are required to implement the necessary measures on a continuous basis. Following evaluation, the results are fed back into the process for awarding contracts for new projects. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 171 The risks associated with the supply of raw materials are mitigated either by reducing the use of raw materials or substituting them with alternative products. Within the Purchasing and Supplier Network, oppor- tunities arise above all in the area of global sourcing and the associated efficiency improvements. Making optimal use of any innovations developed by suppliers is a key prerequisite for developing future-oriented mobility prod- ucts and services. Similarly, favourable location-related cost factors, in particular those arising due to the close proximity of supplier structures to new and existing BMW Group production plants as well as the introduc- tion of innovative production technologies, could lead to lower cost of materials for the BMW Group. One of the BMW Group’s aims is to have battery cells manufactured in Europe. Key prerequisites for achieving this aim, however, are primarily further advances in the development of battery cell technology and the mastery of cell production processes. Contracts have been con- cluded with various suppliers as part of the Group’s elec- trification strategy. A further source of opportunities is seen in the possible integration of previously unidentified supplier-driven innovations in the Group’s product range. The BMW Group offers innovative suppliers numerous options for creating specific contractual arrangements that promote companies developing innovative solutions. Compared to the assumptions made in the outlook, the BMW Group does not expect such additional oppor- tunities to have a significant earnings impact over the two-year assessment period. Risks and opportunities relating to the sales network In order to sell its products and services, the BMW Group operates a global sales network mainly com- prising independent dealerships, branches, subsidiaries and importers. In addition, a pilot project to promote direct sales was launched in South Africa in 2020. Any threat to the continued activities of parts of the sales network, for example due to the impending insolvency of a dealership, would entail risks for the BMW Group. The occurrence of sales and marketing risks would have only a low earnings impact over the two-year assessment period. The risk amount is classified as low. New developments in the field of digital communica- tion and connectivity provide new opportunities for the BMW Group’s brands to take advantage of additional sales channels in their efforts to bring new products to market. Based on vehicle-driven telematics data, custom- ers can elect to use a specific service and actively consent to the relevant data being transferred. The service provid- ers contracted to perform the work receive the necessary data via the BMW Group’s secure back end system. The information forms the basis for customised, data-driven, innovative service options. Additional oppor tunities could arise if new sales channels contribute to greater brand reach to customer groups than currently envisaged in the outlook. Compared to the assumptions made in the outlook, the BMW Group does not expect these opportunities to have a significant earnings impact over the two-year assessment period. Information security, data protection and IT The advance of digitalisation throughout all areas of the business world places considerable demands on the confidentiality, integrity and availability of electronical- ly processed data and the associated use of information technology (IT). Alongside higher threat levels in this area, regulatory requirements worldwide relating to the use of personal data are becoming increasingly stringent, for example due to the California Consumer Privacy Act. If risks relating to information security, data protection and IT were to materialise, they could have a high earnings impact over the two-year assess- ment period. Despite extensive security measures and constant efforts to ensure compliance with applicable data protection legislation, the risk amount in this area is classified as high. In addition to cyberattacks and direct physical inter- vention, there is a risk that either a lack of knowledge or misconduct on the part of employees could also pose a danger to the confidentiality, integrity and availability of information, data and systems. The main direct con- sequences could range from negative effects on revenues due to the misuse of information through to disruption in the production of components or vehicles. A further indirect consequence could be reputational damage. The BMW Group places great emphasis on protecting the confidentiality, integrity and availability of informa- tion from unauthorised access or misuse, whether relat- ing to business, employees or customers. Data security is an integral part of all Group business processes and practised in accordance with the ISO / IEC 27001 inter- national standard. In conjunction with risk management requirements, risks relating to information security, data protection and IT are systematically documented, allocat- ed appropriate measures by the departments concerned and continuously monitored with regard to threat level and risk mitigation. Regular analyses and controls as well as rigorous security management policies ensure an appropriate level of security. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 172 However, despite continuous testing and preventive security measures, it is impossible to eliminate risks com- pletely in this area. All Group employees are required to treat information such as confidential business, customer and employee data with care, use information systems se- curely and handle risks in a transparent manner. Group- wide requirements are documented in a comprehensive set of principles, guidelines and instructions, such as, for example, the Privacy Corporate Rules for handling per- sonal data. Regular communication, awareness-raising and training measures form the basis for a high level of security and risk awareness. With regard to cooperations and business partnerships, the BMW Group protects its intellectual property as well as its customer and employee data by issuing clearly defined instructions on informa- tion security, data protection and the use of information technology. Trade secrets and sensitive personal data are subject to particularly stringent security measures. Technical data protection incorporates industry-wide standards and good practices. Responsibility for informa- tion security and data protection for each Group entity lies with either the Board of Management or the relevant management team. With the advance of digitalisation, the BMW Group is continually improving the customer experience in its existing lines of business. At the same time, new busi- ness segments are emerging, which have only become feasible due to innovation in the field of information technology. The development and provision of digital ser- vices for customers, increased vehicle connectivity and automated driving solutions are opening up new oppor- tunities. Via BMW ConnectedDrive and BMW CarData, the range of services and apps on offer to customers is constantly being expanded and updated. Compared to the assumptions made in the outlook, the BMW Group does not expect these opportunities to have a significant earnings impact over the two-year assessment period. FINANCIAL RISKS AND RISKS RELATING TO THE USE OF FINANCIAL INSTRUMENTS Currency risks and opportunities As an internationally operating enterprise, the BMW Group conducts business in a variety of currencies, thus giving rise to currency risks and opportunities. A substantial portion of Group revenues, purchasing and funding occur outside the eurozone, particularly in China and the USA. Regularly updated cash-flow-at-risk models and scenario analyses are used to measure currency risks and opportunities. If currency risks were to materialise, they could be associated with a high earnings impact over the two-year assessment period. The risk amount relating to currency risks is classified as high. The risk assessment is therefore slightly less favourable than one year earlier, due to the increased volatility of individual currencies in the wake of the coronavirus pandemic. Significant opportunities can arise if currency developments are favourable for the BMW Group. Operational currency management is based on the re- sults of currency risk analyses. The BMW Group manages currency risks at both strategic (medium to longterm) and operational level (short to mediumterm). Medium- to long-term measures include increasing production and purchase volumes in foreign currency regions, i. e. nat- ural hedging. Currency risks are managed in the short to medium term and for operational purposes by means of hedging on financial markets. The principal objective is to increase planning reliability for the BMW Group. Hedging transactions are entered into only with finan- cial partners of good credit standing. Opportunities are also secured through the use of options during specific market phases. Risks and opportunities relating to raw materials prices As a large-scale manufacturing company, the BMW Group is exposed to purchase price risks, par- ticularly in relation to the raw materials used in vehicle production. The analysis of raw materials price risks is based on planned purchases of raw materials and com- ponents containing those products. Cash-flow-at-risk models and scenario analyses are used to measure risks and opportunities relating to raw materials prices. If such risks were to materialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is classified as medium. Signif- icant opportunities could arise if raw materials prices develop favourably for the BMW Group. Changes in prices are monitored via a well-defined management process, the primary objective of which is to increase planning reliability for the BMW Group. Price fluctuations for precious metals (platinum, palladium, rhodium), nonferrous metals (aluminium, copper), raw materials for batteries (lead, nickel, cobalt) and, to some extent, for steel and its basic ingredients (iron ore, coking coal) as well as energy (gas, electricity) are hedged using financial derivatives and supply contracts with fixed pricing arrangements. BMW GroupReport 2020 173 The BMW Group holds equity investments of varying amounts in numerous entities, which could result in risk from depreciation and amortisation. If other financial risks were to materialise, they could have a medium earnings impact over the two-year as- sessment period. The risk amount associated with other financial risks is classified as medium. Revaluations of investments could give rise to opportunities with a significant earnings impact. Risks and opportunities relating to pension obligations Future pension obligations are financed largely via external pension funds or trust constructs that are le- gally separate from BMW. Externally managed funds are invested on capital markets in a broadly diversified port- folio with a view to enabling future pension payments to be disbursed out of pension assets. These arrangements greatly reduce the need to fund pension payments out of ongoing operations. Combined Management Report Report on Outlook, Risks and Opportunities Liquidity risks The major part of the Financial Services segment’s credit financing and leasing business is refinanced on capital markets. Liquidity risks can arise in the form of rising refinancing costs or from restricted access to funds as a consequence of the general market situation. If liquidity risks were to materialise, they would be likely to have a medium earnings impact over the two-year assess- ment period. The risk amount associated with liquidity risks, including the risk of the BMW Group’s rating being downgraded, is classified as medium. The year-on-year change in the assessment of the risk amount reflects the sharp short-term rise in refinancing costs on capital markets at the beginning of the coronavirus pandemic. Based on the experience gained during the global financial crisis, a liquidity concept has been drawn up, which is rigorously adhered to and continuously devel- oped. The concept has been recently updated to take account of the implications of the coronavirus pandemic. The use of the “matched funding principle” to finance the Financial Services segment’s operations ensures that liquidity risks are generally avoided. Furthermore, scenarios have been calculated to present and analyse the potential impact of the coronavirus pandemic on the matched funding principle. Solvency is assured at all times throughout the BMW Group by adhering to liquidity ratios and using a broadly diversified range of refinancing sources. Regular measurement and monitoring ensure that cash inflows and outflows for the various maturities and currencies offset one another. This approach is an integral part of the BMW Group’s liquidity concept. The liquidity position is monitored continuously and managed through the Group-wide planning of financial requirements and funding. The diversified refinancing strategy employed reduces dependency on financial instruments and markets. Moreover, the BMW Group’s solid financial and earnings position results in high credit ratings from internationally recognised rating agencies. At present, opportunities relating to liquidity are not expected to have any significant earnings impact. Further information on risks in conjunction with fi- note 39 to the Group nancial instruments is provided in Financial Statements. Other financial risks Other financial risks worth mentioning include coun- terparty risks as well as those arising in connection with investments in other entities. The BMW Group works together with banks to en- sure that the available liquidity is optimally invested and to hedge against financial market risks (particularly cur- rency, commodity and interest rate risks) using derivative financial instruments. Counterparty risk describes the risk that the BMW Group will not receive the payments due to it in connection with the investment and hedging transactions referred to above. An enhanced value-at-risk model is employed to measure counterparty risk, taking into account the creditworthiness (rating) of the banks and the business volumes involved. Risk is managed using a limit system, which includes daily monitoring of the extent to which limits are being utilised. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 174 Risks arise from fluctuations in pension obligations on the one hand and the related pension assets on the other. Opportunities arise if the value of pension assets on capital markets develops favourably or if pension obligations decrease at a more pronounced rate than the related assets. Pension obligations are primarily measured using a discount rate based on market yields from high-quality corporate bonds. These yields are subject to market fluctuations and therefore influence the level of pension obligations. Changes in other parameters, such as rising inflation rates and longer life expectancy, also impact the amount as well as the duration of future pension payments. Regulatory requirements or changes may also affect the amount of pension obligations. The fluctuation of pension assets reflects the vola- tility of individual asset classes on capital markets. The broadly diversified portfolio comprises investments in interest-bearing securities, equities, real estate and other asset classes. Despite the high level of external funding, risks re- lating to pension obligations could have a high earnings impact over the two-year assessment period. The risk amounts attached to pension obligations are classified as high. The strategic portfolio allocation of pension assets therefore comprises two key components. One part is al- located with a view to hedging against value fluctuations, applying the “liability-driven investment approach”, whereby capital market instruments are employed on a targeted basis to hedge against financial risks arising from the measurement of pension obligations. A second part is allocated with a view to generating income. Within a favourable capital market environment, this part of the pension assets offers the opportunity to further reduce pension plan deficits by generating positive returns and thereby impact the BMW Group’s financial position to a significant degree. The risks and opportunities described above are continuously monitored and managed. Remeasurements on the liability and asset sides are recognised net of deferred taxes through other compre- hensive income and hence directly in equity (within revenue reserves). Further information on risks in conjunction with note 32 to the Group pension provisions is provided in Financial Statements. LEGAL RISKS The BMW Group is exposed to various legal risks, not least due to the global nature of its operations. Legal risks may result from non-compliance with laws or other legal requirements or from legal disputes with business partners or other market participants. If legal risks were to materialise, they could have a high earnings impact over the two-year assessment period. The risk amounts attached to significant identified legal risks are classified as medium. However, it cannot be ruled out that new legal risks, as yet unforeseen, materialise that could have a high earnings impact for the BMW Group. The growing globalisation of the BMW Group’s operations as well as of business interdependencies in general, combined with the variety and complexity of legal provisions – increasingly including import and export regulations – give rise to a greater risk of non-compliance with applicable law. A Compliance Man- agement System is in place across the BMW Group to ensure that its representative bodies, executives and staff members worldwide consistently act in a lawful manner. In 2020, the system was further developed, primarily by establishing additional compliance functions in various centralised departments within BMW AG, stepping up face-to-face training on antitrust compliance and via a Group-wide “Tone from the Top” communication initi- ative that reflects the compliance management culture within the BMW Group. Corporate Governance Like all entities with international operations, the BMW Group is confronted with legal disputes, alleged claims (particularly relating to warranties and product liability or intellectual property rights infringements) and proceedings initiated by government agencies. Any of these could, amongst other consequences, have an adverse impact on the Group’s reputation. Such pro- ceedings are typical for the sector, may result as a con- sequence of realigning product or purchasing strategies to changed market conditions or are antitrust-related. Particularly in the US market, class action lawsuits and product liability risks can have substantial financial con- sequences and cause damage to the Group’s reputation. More rigorous application or interpretation of existing regulations or the introduction of new regulations could result in a greater number of recalls. BMW GroupReport 2020 175 Combined Management Report Report on Outlook, Risks and Opportunities In an antitrust investigation, the EU Commission al- leges that five German car manufacturers colluded with the aim of restricting competition for innovation with regard to certain exhaust treatment systems for diesel- and petrol-driven passenger vehicles. The current investi- gation is solely concerned with possible infringements of competition law. The EU Commission is not alleging that the BMW Group conducted a deliberate and unlawful ma- nipulation of the emissions control system. The Statement of Objections leads the BMW Group to believe that it is probable (“more likely than not”) that the Commission will issue a significant fine. A provision of approximately € 1.4 billion was recognised in 2019 in accordance with International Financial Reporting Standards for negative financial impacts that cannot yet be definitively assessed. In December 2019 the BMW Group submitted a detailed reply to the Statement of Objections. The EU Commis- sion is currently examining the reply and, on that basis, will determine the next procedural steps. Therefore, the financial impact cannot yet be definitively assessed. For several years, lawsuits have been filed against BMW Bank GmbH (BMW Bank) in which consumers claim the withdrawal of their loan and leasing contracts on the basis of allegedly incorrect and insufficient pre-contractual information. The focus is on loan con- tracts. Since 2017, BMW Bank has won the vast majority of these lawsuits. In November 2019, the Federal Court of Justice (BGH) adopted a decision of principle in favour of BMW Bank, confirming the accuracy of consumer-rel- evant information in loan contracts. In addition, in Octo- ber 2020 the BGH decided in a case in which BMW Bank was not involved that consumers are generally obliged to pay a compensation after a successful withdrawal. Since the beginning of 2020, several references for a prelim- inary ruling on the scope of information obligations have been filed with the European Court of Justice (ECJ). On the basis of these requests, there is a risk that BMW Bank’s prospects of success in the withdrawal lawsuits could deteriorate in the event of negative future ECJ case law. The possible financial impact cannot be definitively assessed at this stage. The BMW Group recognises appropriate levels of pro- vision for lawsuits. In addition, a part of these risks is in- sured to an economically reasonable extent. Further risks from legal proceedings are reported as other contingent liabilities. It cannot be ruled out, however, that damages arise that are either not covered or not fully covered by insurance policies or provisions or reported as contingent liabilities. In accordance with IAS 37 (Provisions, Con- tingent Liabilities and Contingent Assets), the required information is not provided if the BMW Group concludes that its disclosure could seriously prejudice the outcome of the relevant legal proceedings. Further information on contingent liabilities is provided in note 38 to the Group Financial Statements. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities RISK MANAGEMENT SYSTEM IN THE FINANCIAL SERVICES SEGMENT In the Financial Services segment, the risk manage- ment process also takes financial regulatory require- ments such as Basel III into account. Internal methods for identifying, measuring, managing and monitoring risks within the Financial Services segment comply with national and international standards. Risk management within the Financial Services business is built on the prevailing risk culture, the defined risk strategy, the internal capital adequacy assessment process framework and a set of rules comprising principles and guidelines. In organisational terms, the risk management process is ensured by means of a clear division between front- and back-office activities and a comprehensive internal control system. The main tool used to manage risk within the Financial Services segment is to ensure the segment’s risk-bearing capacity. All risks – in the sense of unexpected losses – must be covered at all times. Based on the entity’s risk ap- petite, this is achieved by ensuring specified levels of risk-covering assets (asset cushions) in the form of equity capital. Unexpected losses are measured using various value-at-risk models, which are validated at regular in- tervals. Risks are also aggregated after taking account of correlation effects. In addition to assessing the Group’s ability to bear risk, stress scenarios are also examined. The segment’s risk-bearing capacity is also regularly monitored by means of an integrated limit system for the various risk categories. 176 Sustainability has developed into a megatrend of our time and is increasingly becoming the focus of political and social debate. Both the effects of climate change and the changes brought about by the fight against climate change are also likely to be reflected across the world’s financial system. Due to the potential macroeconomic consequences, the related sustainability risks are seen as a threat to the stability of financial markets. In the context of bank supervision at national and international level, it is therefore essential that the banks concerned take sustainability risks adequately into account. The Financial Services segment not only helps its customers to satisfy their mobility needs by offering credit financing and leasing products, it also promotes the BMW Group’s industrial business from a sales point of view. The far-reaching consequences of the debate on sustainability and sustainability risks affect both the non-financial economy (and therefore the BMW Group) and the financial economy (and therefore the Financial Services segment). Due to the close interrelationships within the Group, developments that affect the BMW Group’s industrial business in the first step (e. g. diesel driving bans, adjustments to carbon emissions targets, the growing proportion of e-vehicles, etc.) are also relevant for the Financial Services segment in the second step. This environment has always been part of the underlying framework of the Financial Services segment’s business model. The growing challenges posed by climate change and the resulting impact on the financial system are taken into account in the Financial Services segment by adequately addressing sustainability risks. As an inte- gral part of the BMW Group’s value chain, the Financial Services segment is highly aware of the importance of managing sustainability risks and is therefore fully inte- grated in the BMW Group’s comprehensive sustainable corporate strategy. The following overview provides a general summary of the main risks and opportunities in the Financial Services segment: Risks Opportunities Classification of risk amount Change compared to prior year Classification Change compared to prior year RISKS AND OPPORTUNITIES Risks and opportunities relating to the provision of financial services Credit risk Residual value Interest rate changes Operational risks Medium High Medium Medium Stable Stable Stable Stable Insignificant Significant Significant – Stable Stable Stable – BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities 177 Residual value risks and opportunities relating to the Financial Services segment Risks and opportunities arise in conjunction with leasing contracts if the market value of a leased vehicle at the end of the contractual term of a lease differs from the residual value estimated at the commencement date of the lease. A residual value risk exists if the expected market value of the vehicle at the end of the contractual term is lower than its estimated residual value at the date the contract is entered into. If unexpected residual value risks were to materialise, they could have a high earnings impact from the Group’s perspective over the two-year assessment period. A high earnings impact would then arise for the affected Financial Services and Automotive segments. The risk amount is classified as high for the Group as a whole. Opportunities can arise out of a pos- itive deviation between the actual market value and the original residual value forecast. The BMW Group classi- fies potential residual value opportunities as significant. Risks and opportunities relating to the Financial Services segment The main categories of risk relevant for the Finan- cial Services segment are credit and counterparty risk, residual value risk, interest rate risk, operational risk and liquidity risk. The evaluation of liquidity risk for the Financial Services segment is included in the liquidity risk category for the Group as a whole. During the financial year 2020, the aggregate risk cushion for risks in the Financial Services segment was sufficient at all times, thereby ensuring the segment’s risk-bearing capacity. Credit and counterparty risks and opportunities relating to the Financial Services segment Credit and counterparty default risk arises within the Financial Services segment if a contractual partner (e. g. a customer or dealership) becomes either unable or only partially able to fulfil its contractual obligations, so that lower income is generated or losses are incurred. If unexpected credit and counterparty default risks were to materialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is classified as medium. The BMW Group classifies poten- tial opportunities in this area as insignificant. In light of the uncertainties surrounding the future course of the coronavirus pandemic, additional credit loss provisions were recognised during the financial year 2020 for expected credit losses, in order to reflect the possible negative impact of the coronavirus pandemic on retail customer and dealership business for accounting purposes. Initial and continuous creditworthiness testing is an important aspect of the BMW Group’s credit risk man- agement system. For this reason, every borrower’s cred- itworthiness is tested for all credit financing and leasing contracts entered into by the BMW Group. Opportunities may arise if the managed portfolio performs better over time than estimated when the credits were granted. The intensive management of purchasing processes and col- lateral assessment as well as favourable macroeconomic developments could accentuate these opportunities. In the case of retail customer financing, creditworthiness is assessed using validated scoring systems integrated in the purchasing process. In the area of dealership financ- ing, creditworthiness is assessed by means of ongoing credit monitoring and an internal rating system that takes account not only of the material credit standing of the borrower, but also of qualitative factors such as past reliability in business relationships. Changes in the cred- itworthiness of customers arising during the credit term are covered by risk provisioning procedures. The credit risk of individual customers is quantified on a monthly basis and, depending on the outcome, taken into account within the risk provisioning system. Macroeconomic developments are currently subject to a higher degree of volatility. If developments are more favourable than assumed in the outlook, credit losses may be reduced, leading to a positive earnings impact. Due to the coronavirus pandemic, moratoria were granted to customers and dealers, particularly during the first six months of the year, taking into account the prevailing legal requirements. The simultaneous im- provement in the economic situation in most markets in the second half of the year meant that the low percentage of actual loan defaults was kept stable. BMW GroupReport 2020 Combined Management Report Report on Outlook, Risks and Opportunities Each vehicle’s estimated residual value is calculated on the basis of historical external and internal data. This estimation provides the expected market value of the ve- hicle at the end of the contractual period. Developments on pre-owned car markets are an important factor for the BMW Group. In 2020, the number of electrified vehicles also continued to increase. Changes in the value of these vehicles are largely determined by a set of known influ- encing factors. Prices on pre-owned car markets in the premium segment fluctuated within the usual range and were even favourably influenced in some cases by coro- navirus-related catch-up effects. As part of the manage- ment of residual value risks, the net present value of risk costs is also calculated at the contract commencement date. Market developments are monitored throughout the contractual period and the risk assessment updated accordingly. Residual value risk management essentially follows the same established process, regardless of the drivetrain variant. Based on current expectations of a rising level of re- sidual value losses in subsequent years, the level of risk provisioning has been raised in the form of additional provisions and in line with applicable financial reporting standards. Accordingly, risk costs for residual value risks in the Financial Services segment are significantly higher than one year earlier. 178 Interest rate risks and opportunities relating to the Financial Services segment Operational risks relating to the Financial Services segment Interest rate risks in the Financial Services segment relate to potential losses caused by changes in market interest rates. These can arise when fixed interest rate periods do not match for assets and liabilities recognised in the balance sheet. If interest rate risks were to mate- rialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is clas- sified as medium. Favourable interest rate developments compared to the outlook represent opportunities that the BMW Group classifies as significant. Interest rate risks in the Financial Services business are managed by ensuring that fixed interest rate periods match to a large extent and through the use of interest-rate derivatives. If the relevant recognition criteria are fulfilled, derivatives used by the BMW Group are accounted for as hedging relationships. Further information on risks in conjunc- tion with financial instruments is provided in note 39 to the Group Financial Statements. In the Financial Services segment, operational risks are defined as the risk of losses arising as a consequence of the unsuitability or failure of internal procedures (process risks), people (personnel-related risks), systems (infrastructure- and IT-related risks) and external events (external risks). The recording and measurement of risk scenarios, loss events and countermeasures in the op- erational risk management system provide the basis for the systematic analysis and management of potential or materialised operational risks. Annual self-assessments are also carried out. This risk category also includes sustainability risks that correspond to the definition of operational risks, such as external events or natural and man-made disasters. If operational risks were to materialise, they would be likely to have a low earnings impact over the two-year as- sessment period. The risk amount is classified as medium. At present, no significant opportunities for the earnings situation are seen with regard to operational risks. BMW GroupReport 2020 Combined Management Report Internal Control System Relevant for Accounting and Financial Reporting Processes 179 * INTERNAL CONTROL SYSTEM RELEVANT FOR ACCOUNTING AND FINANCIAL REPORT- ING PROCESSES The internal control system relevant for accounting and financial reporting processes has the task of en- suring that accounting and financial reporting of the BMW Group is both accurate and reliable. Within the framework of the “Three Lines of Defence” model used to manage risk across the Group, the internal control system represents a key component of the second line of defence, serving as a link between the operating units, the corporate audit function and the external auditors. Internationally recognised standards for internal control systems were taken into account when designing the various components of the BMW Group’s internal control system. The system comprises: — Group-wide mandatory accounting guidelines — Controls integrated in processes and IT systems — Organisational measures incorporating the principles of the risk-oriented segregation of duties — Process-independent monitoring measures The system and the methodologies applied are sub- ject to continuous improvement, with system effective- ness assessed regularly on the basis of centralised and decentralised process analyses, analyses of data within the various financial systems and audit procedures. The principal features of the internal control system, as far as they relate to individual entity and Group accounting and financial reporting processes, are described below. Guidelines for recognising, measuring and allocating items to accounts are available to all Group employees via the intranet. New accounting standards are assessed for their impact on the BMW Group’s accounting and financial reporting. Accounting guidelines and processes are reviewed continuously and revised at least once a year, or more frequently if required. Preventive and detective controls are integrated in Group accounting and financial reporting processes. Preventive controls serve to prevent errors and omis- sions, whereas detective controls serve to detect and correct errors. To the extent possible, they are designed to comply with the principle of the segregation of duties. Key IT systems that are relevant for accounting and fi- nancial reporting incorporate controls designed, among other things, to prevent business transactions from being recorded incorrectly as well as to ensure the timely rec- ognition and measurement of all business transactions in accordance with applicable requirements. Controls are also in place to test the appropriateness of consolidation procedures. * Disclosures pursuant to sections 289 and 315 HGB. In conjunction with the ongoing development of IT systems relevant for accounting and financial report- ing processes at both individual entity and Group level, controls are adapted to take account of new requirements and opportunities arising as a result of advances in infor- mation technology. Moreover, the BMW Group uses data analysis tools to identify and subsequently eliminate any weaknesses in the control system. Responsibilities for ensuring the effectiveness of the internal control system in Group accounting and financial reporting processes are clearly defined and allocated to the relevant line and process managers. These managers report annually on their assessment of the effectiveness of the internal control system for accounting and financial reporting purposes. The assess- ment also includes the results of internal and external audits as well as of data analysis that is conducted on a continual basis. In this context, the Group’s various units confirm the effectiveness of the internal control system for accounting and financial reporting. The results of the assessment are gathered and documented with the aid of appropriate tools. Any weaknesses in the control system are eliminated, taking into account their potential impact on accounting and financial reporting processes. The Board of Management and the Audit Committee are briefed annually on the effectiveness of the internal control system for accounting and financial reporting. The Board of Management and, where appropriate, the Supervisory Board, are informed without delay if there are any significant changes in the effectiveness of the internal control system. BMW GroupReport 2020 Combined Management Report Disclosures Relevant for Takeovers and Explanatory Comments 180 RESTRICTIONS AFFECTING VOTING RIGHTS OR THE TRANSFER OF SHARES In addition to shares of common stock, the Company has also issued non-voting shares of preferred stock. Fur- ther information is provided in the section “Composition of subscribed capital”. When the Company issues non-voting shares of preferred stock to employees in conjunction with its Employee Share Programme, these shares are generally subject to a Company-imposed blocking period of four years, calculated from the beginning of the calendar year in which the shares were issued. Contractual holding period arrangements also apply to shares of common stock acquired by Board of Management members and certain senior department heads in conjunction with the share-based remuneration programmes (Remuneration Report of the Corporate Governance section; note 41 to the Group Financial Statements). DISCLOSURES RELEVANT FOR TAKEOVERS AND EXPLANATORY COMMENTS * COMPOSITION OF SUBSCRIBED CAPITAL The subscribed capital (share capital) of BMW AG amounted to € 659,684,500 at 31 December 2020 (2019: € 658,862,500) and, in accordance with Article 4 no. 1 of the Articles of Incorporation is sub-divided into 601,995,196 shares of common stock (91.26 %) (2019: 601,995,196; 91.37 %) and 57,689,304 shares of non-vot- ing preferred stock (8.74 %) (2019: 56,867,304; 8.63 %), each with a par value of € 1. The Company’s shares are issued to bearer. The rights and obligations of shareholders derive from the German Stock Corporation Act (AktG) in conjunction with the Company’s Articles of Incorporation, the full www.bmwgroup.com. The right text of which is available at of shareholders to have their shares evidenced is ex- cluded in accordance with the Articles of Incorporation. * Disclosures pursuant to § 289a and § 315a HGB. The voting power attached to each share corresponds to its par value. Each € 1 of par value of share capital repre- sented in a vote entitles the holder to one vote (Article 18 no. 1 of the Articles of Incorporation). The Company’s shares of preferred stock are shares as defined in § 139 ff. AktG, which carry a cumulative preferential right in terms of the allocation of profit and for which voting rights are excluded. These shares confer voting rights only in exceptional cases stipulated by law, in particular when the preference amount has either not been paid or has not been fully paid within one year and the arrears are not paid in the subsequent year alongside the full preference amount due for that year. With the exception of voting rights, holders of shares of preferred stock are entitled to the same rights as holders of shares of common stock. Article 24 of the Articles of Incorporation confers preferential treatment to the non-voting shares of preferred stock with regard to the appropriation of the Company’s unappropriated profit. Accordingly, the unappropriated profit is required to be appropriated in the following order: a Subsequent payment of any arrears on dividends on non-voting shares of preferred stock in the order of accruement b Payment of an additional dividend of € 0.02 per € 1 par value on non-voting preferred shares c Uniform payment of any other dividends on shares of common and preferred stock, provided the share- holders do not resolve otherwise at the Annual General Meeting BMW GroupReport 2020 Combined Management Report Disclosures Relevant for Takeovers and Explanatory Comments DIRECT OR INDIRECT INVESTMENTS IN CAPITAL EXCEEDING 10% OF VOTING RIGHTS Based on information available to the Company, the following direct or indirect holdings exceeding 10 % of the voting rights at the end of the reporting period were held at the stated reporting date: ¹ in % Stefan Quandt, Germany AQTON SE, Bad Homburg v. d. Höhe, Germany AQTON Verwaltung GmbH, Bad Homburg v. d. Höhe, Germany AQTON GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe, Germany Susanne Klatten, Germany Susanne Klatten Beteiligungs GmbH, Bad Homburg v. d. Höhe, Germany The voting percentages disclosed above may have changed subsequent to the stated date if these changes were not required to be reported to the Company. As the Company’s shares are issued to bearer, the Company is generally aware of changes in shareholdings only if such changes are subject to mandatory notification rules. SHARES WITH SPECIAL RIGHTS THAT CONFER CONTROL RIGHTS There are no shares with special rights that confer control rights. Direct share of voting rights Indirect share of voting rights 0.2 9.0 16.6 0.2 20.7 25.6 2 16.6 3 16.6 4 20.7 5 CONTROL OF VOTING RIGHTS WHEN EMPLOYEES PARTICIPATE IN CAPITAL AND DO NOT DIRECTLY EXERCISE THEIR CONTROL RIGHTS Like all other shareholders, employees exercise their control rights pertaining to shares they have acquired in conjunction with the Employee Share Programme and / or the share-based remuneration programme directly on the basis of relevant legal provisions and the Company’s Articles of Incorporation. 181 STATUTORY REGULATIONS AND PROVISIONS CONTAINED IN THE ARTICLES OF INCORPORATION GOVERNING THE APPOINTMENT AND REMOVAL OF MEMBERS OF THE BOARD OF MANAGEMENT AND CHANGES TO THE ARTI- CLES OF INCORPORATION The appointment or removal of members of the Board of Management is based on the rules contained in § 84 f. AktG in conjunction with § 31 of the German Co-Deter- mination Act (MitbestG). Amendments to the Articles of Incorporation must comply with § 179 ff. AktG. Amendments must be de- cided upon by the shareholders at the Annual General Meeting (§ 119 (1) no. 6, § 179 (1) AktG). The Supervi- sory Board is authorised to approve amendments to the Articles of Incorporation that only affect its wording (Article 14 no. 3 of the Articles of Incorporation). Reso- lutions are passed at the Annual General Meeting by a simple majority of shares cast unless otherwise explicitly required by binding provisions of law or, if a majority of share capital is required, by a simple majority of shares represented in the vote (Article 20 no. 1 of the Articles of Incorporation). 1 Based on voluntary notifications provided by the listed shareholders as at 31 December 2020. 2 Controlled entities, of which 3 % or more are attributed: AQTON SE, AQTON Verwaltung GmbH, AQTON GmbH & Co. KG für Automobilwerte. 3 Controlled entities, of which 3 % or more are attributed: AQTON Verwaltung GmbH, AQTON GmbH & Co. KG für Automobilwerte. 4 Controlled entities, of which 3 % or more are attributed: AQTON GmbH & Co. KG für Automobilwerte. 5 Controlled entities, of which 3 % or more are attributed: Susanne Klatten Beteiligungs GmbH. BMW GroupReport 2020 Combined Management Report Disclosures Relevant for Takeovers and Explanatory Comments 182 AUTHORISATIONS OF THE BOARD OF MANAGEMENT, IN PARTICULAR WITH RESPECT TO THE ISSUING OR BUYING BACK OF SHARES SIGNIFICANT AGREEMENTS OF THE COMPANY TAKING EFFECT IN THE EVENT OF A CHANGE IN CONTROL FOLLOWING A TAKEOVER BID The Board of Management is authorised to buy back shares and sell repurchased shares in situations specified in § 71 AktG, for example to avert serious and imminent damage to the Company and / or to offer shares to per- sons employed or previously employed by BMW AG or one of its affiliated companies. In accordance with Article 4 no. 5 of the Articles of Incorporation, the Board of Management is authorised, with the approval of the Supervisory Board, to increase by means of cash contributions BMW AG’s share capital during the period up to and including 15 May 2024 by up to € 3,437,600 for the purposes of an Employee Share Pro- gramme by issuing new non-voting shares of preferred stock, which carry the same rights as existing non-voting preferred stock (Authorised Capital 2019). The subscrip- tion rights of existing shareholders are excluded. No conditional capital was in place at the reporting date. BMW AG is party to the following major agreements, which contain provisions that would apply in the event of a change in control or the acquisition of control as a result of a takeover bid: — An agreement concluded with an international con- sortium of banks relating to a syndicated credit line, which was not being utilised at the balance sheet date, entitles the lending banks to give extraordinary notice to terminate the credit line, such that all out- standing amounts, including interest, would fall due with immediate effect if one or more parties jointly acquire direct or indirect control of BMW AG. The term “control” is defined as the acquisition of more than 50 % of the share capital of BMW AG, the right to receive more than 50 % of the dividend or the right to direct the affairs of the Company or appoint the majority of members of the Supervisory Board. — A cooperation agreement concluded with Peugeot SA relating to small (1- to 1.6-litre) petrol engines entitles each of the cooperation partners to give ex- traordinary notification of termination in the event of a competitor acquiring control over the other contractual party and if any concerns of the other contractual party regarding the impact of the change of control on the cooperation arrangements are not resolved during the subsequent discussion process. — BMW AG acts as guarantor for all obligations arising from the joint venture agreement relating to BMW Brilliance Automotive Ltd. in China. This agreement grants an extraordinary right of termination to ei- ther joint venture partner in the event of a change in control at one of the parties or if more than 25 % of the shares of the other party are acquired by a third party – either directly or indirectly – or if the other party is merged with another legal entity. Termination of the joint venture agreement may lead to the dissolution of the joint venture with an optional purchase right for BMW (or for the partner) to acquire the shares of the other partner or to the liquidation of the joint venture company. — Framework agreements are in place with financial institutions and banks (ISDA Master Agreements) with respect to trading activities with derivative financial instruments. These agreements include an extraordinary right of termination that triggers actions in the event that the creditworthiness of the party involved is materially weaker following a direct or indirect acquisition of beneficially owned equity capital which confers the power to elect a majority of the Supervisory Board of a contractual party or any other ownership interest that enables the acquirer to exercise control over a contractual party or which constitutes a merger or a transfer of net assets. BMW GroupReport 2020 Combined Management Report Disclosures Relevant for Takeovers and Explanatory Comments — Financing agreements in place with the European Investment Bank (EIB) entitle the EIB to demand early repayment of its loans in the event of an im- minent or actual change in control of BMW AG, if the EIB has reason to assume – after the change in control has taken place or 30 days after it has made a request to discuss the situation – that the change in control could have a significantly adverse impact, or if the borrower refuses to hold any such discussions. A change in control of BMW AG arises if one or more individuals take over or lose control of BMW AG, with control being defined in the above-mentioned financing agreements as (i) holding or having control over more than 50 % of the voting rights, (ii) the right to appoint the majority of the members of the Board of Management or Supervisory Board, (iii) the right to receive more than 50 % of dividends payable or (iv) any other comparable controlling influence over BMW AG. — BMW AG and Daimler AG have entered into a joint venture agreement relating to mobility services in the areas of car sharing, ride hailing, parking, charging and multimodality, which entitles both Daimler AG and BMW AG (hereafter referred to as “principals”) to initiate a bidding procedure in the event that (i) the other principal receives notice in accordance with § 33 of the German Securities Trading Act (WpHG) that – including shares attributed pursuant to § 34 WpHG – a shareholding of more than 50 % has been attained or, in accordance with § 20 AktG of the German Stock Corporation Act (AktG) that a shareholding of more than 50 % has been attained or (ii) a shareholder or a third party – including shares 183 attributed pursuant to § 30 WpHG – holds more than 50 % of the voting rights or shares in the other principal, or (iii) the other principal has concluded a control agreement as dependent company. The outcome of such a bidding procedure is that the joint venture will go to the principal making the highest bid. the HERE Group or certain potential competitors of the HERE Group from the technology sector acquire at least 25 % of BMW AG. If none of the other share- holders acquire these shares, the other shareholders are entitled to resolve that There Holding B. V. be dissolved. — The development collaboration agreement between BMW AG, Intel Corporation and Mobileye Vision Technologies Ltd., relating to the development of technologies used in automated vehicles, may be terminated by any of the contractual parties if a competitor of one of the parties acquires and sub- sequently holds at least 30 % of the voting shares of one of the contractual parties. — The development collaboration agreement between BMW AG, FCA US LLC and FCA Italy S. p. A. relating to the development of technologies used in conjunc- tion with automated vehicles may be terminated by any of the contractual parties if certain competitors in the technology sector acquire and subsequently hold at least 30 % of the voting shares of one of the other contractual parties. — Several supply and development contracts between BMW AG and various industrial customers, all relat- ing to the sale of components for drivetrain systems, grant an extraordinary right of termination to the relevant industrial customer in specified cases of a change in control at BMW AG (for example BMW AG merges with a third party or is taken over by a third party; an automobile manufacturer acquires more than 50 % of the voting rights or share capital of BMW AG). — BMW AG is party to the shareholder agreement re- lating to There Holding B. V., which is the majority shareholder of the HERE Group. In accordance with the shareholder agreement, each contractual party is required to offer its directly or indirectly held shares in There Holding B. V. for sale to the other sharehold- ers in the event of a change in control. A change in control of BMW AG arises if a person takes over or loses control of BMW AG, with control defined as (i) holding or having control over more than 50 % of the voting rights, (ii) the possibility to control more than 50 % of voting rights exercisable at Annual General Meetings on all or nearly all matters, or (iii) the right to determine the majority of members of the Board of Management or the Supervisory Board. Further- more, a change in control occurs if competitors of BMW GroupReport 2020 184 COMPENSATION AGREEMENTS WITH MEMBERS OF THE BOARD OF MANAGEMENT OR WITH EMPLOYEES IN THE EVENT OF A TAKEOVER BID The BMW Group has not concluded any compen- sation agreements with members of the Board of Man- agement or with employees for situations involving a takeover offer. Combined Management Report Disclosures Relevant for Takeovers and Explanatory Comments — Until 19 June 2020, BMW AG was party to a collab- oration agreement with Mercedes-Benz AG for the development of technologies for second-generation automated driving (from 2024), which could be terminated by either party in the event that a third party – either directly or indirectly – acquires at least 30 % of the voting rights in one of the contractual par- ties (§ 29 (2) and § 30 of the German Securities Acqui- sition and Takeover Act (WpÜG)). This collaboration was terminated with immediate effect in accordance with an agreement dated 18 / 19 June 2020. — BMW AG has entered into an agreement with Great Wall Motor Company Limited to establish the joint venture Spotlight Automotive Ltd. in China. The agreement grants an extraordinary right of termi- nation to either joint venture partner in the event that – either directly or indirectly – more than 25 % of the shares of the other party are acquired by a third party or if the other party is merged with another legal entity. The termination of the joint venture agreement may result in the sale of the shares to the other joint venture partner or in the liquidation of the joint venture entity. BMW GroupReport 2020 Group Financial Statements 185 GROUP FINANCIAL STATEMENTS 186 187 188 190 192 194 194 208 217 219 242 264 269 Income Statement for Group and Segments Statement of Comprehensive Income for Group Balance Sheet for Group and Segments Cash Flow Statement for Group and Segments Statement of Changes in Equity for Group Notes to the Group Financial Statements Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information List of investments at 31 December 2020 BMW GroupReport 2020 Group Financial Statements Income Statement for Group and Segments 186 INCOME STATEMENT FOR GROUP AND SEGMENTS Automotive (unaudited supplementary information) Motorcycles (unaudited supplementary information) Financial Services (unaudited supplementary information) Other Entities (unaudited supplementary information) Eliminations (unaudited supplementary information) Group Note 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 98,990 104,210 80,853 91,682 2,284 2,368 30,044 29,598 – 85,408 – 86,147 – 71,456 – 78,062 – 1,941 – 1,911 – 26,958 – 25,938 in € million Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss before tax Income taxes Profit / loss from continuing operations Profit / loss from discontinued operations Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € 7 8 9 10 10 24 11 11 12 13,582 18,063 9,397 13,620 – 8,795 – 9,367 – 7,237 – 7,762 916 1,031 931 976 – 873 – 2,316 – 929 – 2,335 4,830 7,411 2,162 4,499 920 116 – 458 – 186 392 136 179 – 499 – 109 – 293 5,222 7,118 13 – 1,365 – 2,140 3,857 4,978 – 44 920 236 – 613 17 560 2,722 – 713 2,009 – 136 420 – 737 149 – 32 4,467 – 1,354 3,113 44 3,857 5,022 2,009 3,157 82 107 17 30 3,775 4,915 1,992 3,127 5.73 5.75 – 5.73 5.75 7.47 7.49 – 7.47 7.49 31 14 14 14 14 343 – 240 2 – 2 103 – – – 3 – – 3 100 – 26 74 – 74 – 74 457 – 264 2 – 1 3,086 3,660 – 1,326 – 1,341 34 – 73 73 – 80 194 1,721 2,312 – 1 – 8 – – 7 187 – 56 131 – 131 – 131 – 3 – 4 5 4 1,725 – 456 1,269 – – 4 – 7 – 37 – 40 2,272 – 672 1,600 – 1,269 1,600 67 77 1,202 1,523 3 – 3 – 26 125 – 66 36 – 5 – 5 – 24 173 – 125 29 – – 14,194 – 19,443 14,947 19,764 753 34 – 176 197 808 – 321 24 – 193 225 377 – 1,169 1,515 – 1,292 – 1,761 – 1,232 – 1,419 1,394 1,672 – 208 – 271 – 235 62 – 173 – – 173 – 2 – 171 – 221 – 125 – 96 29 – 67 – – 67 – – 67 – 102 910 – 232 678 – 678 – 678 – – 89 288 – 87 201 – 201 – 201 BMW GroupReport 2020 Group Financial Statements Statement of Comprehensive Income for Group 187 STATEMENT OF COMPREHENSIVE INCOME FOR GROUP in € million Net profit / loss Remeasurement of the net liability for defined benefit pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Marketable securities (at fair value through other comprehensive income) Derivative financial instruments Costs of hedging Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items that can be reclassified to the income statement in the future Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to minority interests Total comprehensive income attributable to shareholders of BMW AG Note 2020 2019 32 19 31 3,857 – 354 139 – 215 7 991 201 106 – 444 – 1,283 – 422 – 637 3,220 82 3,138 5,022 – 1,254 387 – 867 42 – 706 125 – 3 171 544 173 – 694 4,328 107 4,221 BMW GroupReport 2020 Group Financial Statements Balance Sheet for Group and Segments 188 BALANCE SHEET FOR GROUP AND SEGMENTS in € million ASSETS Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Current assets Total assets Automotive (unaudited supplementary information) Motorcycles (unaudited supplementary information) Financial Services (unaudited supplementary information) Other Entities (unaudited supplementary information) Eliminations (unaudited supplementary information) Group Note 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 11,809 21,371 11,212 22,749 155 401 127 407 21 22 23 24 25 26 13 28 29 30 25 26 27 28 12,342 21,850 41,995 3,585 735 11,729 23,245 42,609 3,199 703 48,025 51,030 2,644 2,459 1,216 1,370 2,194 1,325 – 3,585 4,711 – 559 3,196 2,861 – 3,199 5,144 – 131 3,451 2,203 134,851 137,404 48,092 48,089 14,896 15,891 13,391 14,404 2,298 2,518 1,979 2,228 36,252 41,407 5,108 606 9,110 13,537 5,955 1,209 11,614 12,036 – 4,152 342 – 4,772 1,000 33,747 33,492 9,522 9,077 – – – – – – 33 589 687 219 – – – 2 5 81,807 90,630 63,133 64,973 913 377 78 389 89 48,759 50,348 – 20 – 1 48,082 51,079 161 550 139 512 1 – – – 1 – – – – – – – – 6,764 – 7,739 – – 6,938 6,847 – 10,934 – 11,289 – 1,939 131 – 1,168 – 57 – 15 – 49 – 68 84 – 1,418 – 1,853 – – – – – – 36 2,929 3,351 41,860 38,919 – 46,467 – 43,184 570 100,956 105,908 50,869 47,019 – 65,655 – 64,182 679 186 – – – 1 11 877 818 100 808 103 36,252 41,407 612 64 5,952 2,863 1,009 84 5,106 2,075 – – – 392 200 – 1 – 187 125 – – – – 48 – – – – – 13 – 52,625 64,692 – 83,216 – 91,677 1,147 873 – – 46,661 50,592 54,364 65,878 – 83,264 – 91,690 216,658 228,034 111,225 113,062 1,502 1,447 147,617 156,500 105,233 112,897 – 148,919 – 155,872 BMW GroupReport 2020 Group Financial Statements Balance Sheet for Group and Segments 189 in € million Note 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Automotive (unaudited supplementary information) Motorcycles (unaudited supplementary information) Financial Services (unaudited supplementary information) Other Entities (unaudited supplementary information) Eliminations (unaudited supplementary information) Group EQUITY AND LIABILITIES Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Non-current provisions and liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities 31 31 31 31 31 32 33 13 35 36 33 34 35 37 36 660 2,199 659 2,161 59,550 57,667 – 1,518 – 1,163 60,891 59,324 629 583 61,520 59,907 41,117 40,174 3,693 6,488 509 3,335 5,788 632 67,390 70,647 5,095 5,100 3,197 6,268 697 2,087 7,270 2,820 5,605 543 2,680 7,929 83,175 85,502 19,519 19,577 7,494 747 38,986 8,644 16,092 7,421 963 46,093 10,182 17,966 6,960 537 897 7,365 6,962 704 1,929 8,814 34,830 34,902 Current provisions and liabilities 71,963 82,625 50,589 53,311 – 109 74 – – 522 705 100 – – 378 319 797 – 96 81 – – 569 746 105 – – 413 183 701 15,555 15,545 21,389 21,972 – 16,541 – 17,784 49 146 2,812 17,730 42,506 47 102 3,804 18,170 39,639 338 – 78 372 – 34 – – – – – 3,078 – 3,749 47,588 49,865 – 15 – 68 1,011 102 – 46,214 – 43,139 63,243 61,762 49,015 50,373 – 49,307 – 46,956 388 192 299 184 46 18 55 75 25,178 26,938 12,959 17,239 892 943 9 12 – – – 48 – – – – 13 – 42,169 50,829 21,797 23,171 – 83,023 – 91,119 68,819 79,193 34,829 40,552 – 83,071 – 91,132 Total equity and liabilities 216,658 228,034 111,225 113,062 1,502 1,447 147,617 156,500 105,233 112,897 – 148,919 – 155,872 BMW GroupReport 2020 Group Financial Statements Cash Flow Statement for Group and Segments 190 CASH FLOW STATEMENT FOR GROUP AND SEGMENTS in € million Profit/loss before tax 1 Income taxes paid Interest received 2 Other interest and similar income / expenses 2 Depreciation and amortisation of tangible and intangible assets Other non-cash income and expense items Result from equity accounted investments Gain / loss on disposal of tangible and intangible assets and marketable securities Change in leased products Change in receivables from sales financing Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in provisions Change in other operating assets and liabilities Cash inflow / outflow from operating activities The reconciliation of liabilities from financing activities is presented in note 35. Group 2019 7,118 – 3,389 91 51 6,017 – 200 – 136 4 – 3,825 – 3,560 – 1,117 – 1,560 14 429 1,512 1,096 3,662 Automotive (unaudited supplementary information) Financial Services (unaudited supplementary information) 2020 2019 2020 2019 2,722 – 382 283 152 5,974 94 – 920 – – – – 841 422 191 – 1,454 1,122 – 26 8,178 4,467 – 1,984 91 61 5,853 – 262 – 136 3 – – – 831 – 1,255 43 381 1,745 683 9,690 1,725 – 1,513 3 1 46 6 – – – 311 4,184 – 76 – 43 1 – 34 129 – 1,432 2,762 2,272 – 345 – 3 54 23 – – – 3,600 – 3,589 – 222 – 193 – 11 – 18 – 59 118 – 5,345 2020 5,222 – 1,605 163 104 6,139 99 – 920 – – 1,016 4,192 – 996 370 160 – 1,526 1,115 754 13,251 BMW GroupReport 2020 Group Financial Statements Cash Flow Statement for Group and Segments 191 in € million 2020 Group 2019 2020 2019 Automotive (unaudited supplementary information) Financial Services (unaudited supplementary information) Total investment in intangible assets and property, plant and equipment – 6,150 – 6,902 – 5,990 – 6,734 Proceeds from subsidies for intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investment assets Proceeds from the disposal of investment assets and other business units 3 Investments in marketable securities and investment funds Proceeds from the sale of marketable securities and investment funds 53 34 – 176 1,328 – 925 2,200 50 32 – 1,598 1,087 – 775 822 45 34 – 199 1,327 – 829 1,679 50 31 – 1,557 1,087 – 507 465 Cash inflow / outflow from investing activities – 3,636 – 7,284 – 3,933 – 7,165 Payments into equity Payment of dividends for the previous year Intragroup financing and equity transactions Interest paid 2 Proceeds from issue of non-current financial liabilities Repayment of non-current financial liabilities Change in other financial liabilities Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 28 – 1,671 – – 275 164,478 – 171,532 718 – 8,254 180 – 40 1,501 12,036 13,537 33 – 2,366 – – 199 150,517 – 143,500 305 4,790 – 28 – 83 1,057 10,979 12,036 28 – 1,671 – 901 – 447 – – 982 – 33 – 2,366 877 – 197 173 – 605 – – 3,973 – 2,085 130 43 445 9,077 9,522 – 22 28 446 8,631 9,077 1 At the beginning of the financial year 2020, the starting point for determining cash flow was changed to profit / loss before tax; the previous year’s figures have been adjusted accordingly. 2 With the exception of interest for lease liabilities, interest relating to financial services business is classified as revenues / cost of sales. 3 Includes dividends received from investment assets amounting to € 1,020 million (2019: € 643 million). 2020 – 14 8 – – – – 91 521 424 – – – 2,438 – 18 153,823 – 156,657 2,782 – 2,508 110 – 788 2,075 2,863 2019 – 19 2 1 – 57 – 268 356 129 – – 5,491 – 1 132,408 – 133,089 491 5,300 6 – 90 1,985 2,075 BMW GroupReport 2020 Group Financial Statements Statement of Changes in Equity for Group STATEMENT OF CHANGES IN EQUITY FOR GROUP 192 in € million 1 January 2020 Net profit Other comprehensive income for the period after tax Comprehensive income at 31 December 2020 Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2020 Note 31 Subscribed capital Capital reserves Revenue reserves Translation differences Marketable Securities 659 2,161 57,667 – 760 29 – – – – 1 – – – – – – – 38 – 3,775 – 215 3,560 – 1,646 – – – 31 – – 1,396 – 1,396 – – – – – 5 5 – – – – 31 660 2,199 59,550 – 2,156 34 Accumulated other equity Derivative financial instruments Costs of hedging Equity attributable to shareholders of BMW AG Minority interest Total 15 – 781 781 – – – 72 868 – 447 59,324 583 59,907 – 188 188 – – – – 5 – 264 3,775 – 637 3,138 82 – 82 3,857 – 637 3,220 – 1,646 – 25 – 1,671 1 38 36 60,891 – – – 11 629 1 38 25 61,520 BMW GroupReport 2020 Group Financial Statements Statement of Changes in Equity for Group in € million 1 January 2019 (as originally reported) Effects of accounting policy change* 1 January 2019 (as adjusted due to accounting policy change) Net profit Other comprehensive income for the period after tax Comprehensive income at 31 December 2019 Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2019 Note 31 Subscribed capital Capital reserves Revenue reserves Translation differences Marketable Securities Accumulated other equity Derivative financial instruments Costs of hedging Equity attributable to shareholders of BMW AG Minority interest 658 – 2,118 55,862 – 1,326 – – 32 – 658 2,118 55,830 – 1,326 – – – – 1 – – – – – – – 43 – 4,915 – 867 4,048 – 2,303 – – 92 – 566 566 – – – – – 1 – – 1 – 30 30 – – – – 29 558 – – 569 57,300 – – 32 558 – 569 57,268 – – 551 – 551 – – – 8 15 – 128 128 – – – – 6 – 447 4,915 – 694 4,221 – 2,303 1 43 94 59,324 529 – 529 107 – 107 – 63 – – 10 583 * The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, Note 6 to the Group Financial Statements). 31 659 2,161 57,667 – 760 193 Total 57,829 – 32 57,797 5,022 – 694 4,328 – 2,366 1 43 104 59,907 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements NOTES TO THE GROUP FINANCIAL STATEMENTS Accounting Principles and Policies 01 BASIS OF PREPARATION The consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft (BMW Group Financial Statements or Group Financial Statements) at 31 Decem- ber 2020 were drawn up in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU), and the supplementary require- ments of § 315 e (1) of the German Commercial Code (HGB). The Group Financial Statements and Combined Management Report will be submitted electronically to the operator of the Federal Gazette and are accessible via the website of the Company Register. Bayerische Motoren Werke Aktiengesellschaft (BMW AG), which has its seat in Germany, Munich, Petuelring 130, is registered in the Commercial Register of the District Court of Munich under the number HRB 42243. BMW AG manufactures automobiles and motorcycles in the premium segment. The Group currency is the euro. All amounts are disclosed in millions of euros (€ million) unless stated otherwise. presentation in the notes relating to relevant balance sheet and income statement items. Prior year figures have been adjusted accordingly. 194 Key figures presented in the report have been round- ed in accordance with standard commercial practise. In certain cases, this may mean that values do not add up exactly to the stated total and that percentages cannot be derived from the values shown. The income statement for the BMW Group and segments is presented using the cost of sales method. In order to provide a better insight into the results of operations, financial position and net assets of the BMW Group, and going beyond the requirements of IFRS 8 (Operating Segments), the Group Financial Statements also include an income statement and a balance sheet for the Automotive, Motorcycles, Finan- cial Services and Other Entities segments. The Group Cash Flow Statement is supplemented by a statement of cash flows for the Automotive and Financial Services segments. Inter-segment transactions relate primarily to internal sales of products, the provision of funds for Group companies and the related interest. A description of the nature of the business and the major operating activities of the BMW Group’s segments is provided in note 45 (“Explanatory notes to segment information”). Approval for the publication of the Group Financial Statements was granted by the Board of Management on 9 March 2021 and by the Supervisory Board on 11 March 2021. The presentation of selected items was changed in the financial year 2020, whereby the changes were not material overall. Attention is drawn to the changes in 02 GROUP REPORTING ENTITY AND CONSOLIDATION PRINCIPLES The BMW Group Financial Statements include BMW AG and all material subsidiaries over which BMW AG – either directly or indirectly – exercises con- trol. This also includes 57 structured entities, consisting of asset-backed financing arrangements and special purpose funds. In relation to fully consolidated companies, the fol- lowing changes took place in the Group reporting entity in the financial year 2020: Included at 31 December 2019 Included for the first time in 2020 No longer included in 2020 Included at 31 December 2020 Germany Foreign Total 21 – – 21 186 207 14 15 14 15 185 206 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements All consolidated subsidiaries have the same year-end as BMW AG with the exception of BMW India Private Ltd. and BMW India Financial Services Private Ltd., whose year-ends are 31 March in accordance with local legal requirements. When assessing whether an investment gives rise to a controlled entity, an associated company, a joint operation or a joint venture, the BMW Group considers contractual arrangements and other circumstances, as well as the structure and legal form of the entity. Dis- cretionary decisions may also be required. If indications exist of a change in the judgement of (joint) control, the BMW Group undertakes a new assessment. An entity is deemed to be controlled if BMW AG – ei- ther directly or indirectly – has power over it, is exposed or has rights to variable returns from it and has the ability to influence those returns. An entity is classified as an associated company if BMW AG – either directly or indirectly – has the ability to exercise significant influence over the entity’s operating and financial policies. As a general rule, the Group is assumed to have significant influence if it holds 20 % or more of the entity’s voting power. Joint operations and joint ventures are forms of joint arrangements. Such an arrangement exists when a BMW Group entity jointly carries out activities with a third party on the basis of a contractual agreement. In the case of a joint operation, the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrange- ment. Assets, liabilities, revenues and expenses of a joint operation are recognised proportionately in the Group 195 Financial Statements on the basis of the BMW Group entity’s rights and obligations (proportionate consolida- tion). The other changes to the Group reporting entity do not have a material impact on the results of operations, financial position and net assets of the Group. The two largest joint operations that are accounted for by the BMW Group and which are described below are of minor significance for the Group Financial State- ments as a whole: — The BMW Group is party to a cooperation with Toyota Motor Corporation, Toyota City, which has developed a sports car. — In 2019, the BMW Group and the Chinese auto- mobile manufacturer Great Wall Motor Company Limited (Great Wall) established the jointly operated company, Spotlight Automotive Limited (Spotlight) for the future joint development and manufacture of electric vehicles in China. The BMW Group and Great Wall each hold 50 % of the joint operation’s equity. In addition to electric MINI vehicles, Spot- light will also develop and produce electric vehicles for Great Wall. In June 2020, a joint decision was taken to temporar- ily put on hold the cooperation with the Daimler Group for the development of highly automated driving systems, which is accounted for as a joint operation. This has no impact on the financial statements. In the case of a joint venture, the parties which have joint control only have rights to the net assets of the arrangement. Associated companies and joint ventures are account- ed for using the equity method, with measurement on initial recognition based on acquisition cost. 03 FOREIGN CURRENCY TRANSLATION AND MEASUREMENT The financial statements of consolidated companies which are presented in a foreign currency are trans- lated using the modified closing rate method. Under this method, assets and liabilities are translated at the closing exchange rate, whilst income and expenses are trans lated at the average exchange rate. Differences arising on foreign currency translation are presented in “Accumulated other equity“. In the single entity accounts of BMW AG and its sub- sidiaries, foreign currency receivables and payables are measured on initial recognition using the exchange rate prevailing at the date of first-time recognition. Advance payments to suppliers or from customers in a foreign currency that result in the addition of non-monetary assets or liabilities are recorded at the exchange rate prevailing at the date of payment. At the end of the reporting period, foreign currency receivables and pay- ables are measured using the closing exchange rate. The resulting unrealised gains and losses, as well as realised gains and losses arising on settlement, are recognised in the income statement, in line with the underlying substance of the transaction. Non-monetary balance sheet items denominated in foreign currencies are rolled forward on the basis of historical exchange rates. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The exchange rates of currencies which have a material impact on the Group Financial Statements were as follows: 1 Euro = US-Dollar British Pound Chinese Renminbi South African Rand Russian Rouble Argentina has fulfilled the definition of a hyper- inflationary economy since 1 July 2018. Since that date, IAS 29 (Financial Reporting in Hyperinflationary Economies) has therefore been applied for the BMW subsidiary in Argentina. The price indices published by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE) are used to adjust non-monetary assets and liabilities and items in the income statement. The resulting effects are not material for the BMW Group. 196 In accordance with the amendments, hedge account- ing is not required to be discontinued solely because of the reform. Instead, the hedge relationships are deemed to remain in place even if the existing benchmark interest rate is replaced by an alternative interest rate, provided that the underlying documentation has been appropri- ately updated. Replacing a previous benchmark rate results in a change in the basis for determining the contractual cash flows relating to financial assets and financial liabilities. For simplification purposes, it is permitted to account for the change by updating the effective interest rate without any immediate impact on profit or loss. This practical expedient is also available for finance leases, in that the requirements contained in IFRS 9 for modifications are deemed to apply. A similar practical expedient is available for lease liabilities accounted for in accordance with IFRS 16. In this case, any modification required by the benchmark reform results only in the lease liability being remeasured when the alternative interest rate is used to discount the modified lease payments. The amendments are mandatory for financial years beginning on or after 1 January 2021. The BMW Group intends to apply the proposed practical expedients for transactions affected by the benchmark reform. The amendments have not been adopted early for the finan- cial year 2020. Other financial reporting standards issued by the IASB and not yet applied are not expected to have any significant impact on the BMW Group Financial Statements. Closing rate Average rate 31. 12. 2020 31. 12. 2019 1.23 0.90 8.00 17.97 90.54 1.12 0.85 7.82 15.72 69.60 2020 1.14 0.89 7.87 18.77 82.71 2019 1.12 0.88 7.73 16.17 72.43 04 FINANCIAL REPORTING RULES a Financial reporting standards applied for the first time in the financial year 2020 Standards or amendments to standards applied for the first time in the financial year do not have any significant impact on the BMW Group Financial State- ments. b Financial reporting standards issued by the IASB, but not yet applied In August 2020, the IASB published the Amendment Standard Interest Rate Benchmark Reform (IBOR) – Phase 2. The amendments contain a number of reliefs to mitigate the impact on the accounting treatment of hedge relationships, financial instruments and lease liabilities resulting from the reform of interest rate benchmarks. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 197 05 ACCOUNTING POLICIES, ASSUMPTIONS, JUDGEMENTS AND ESTIMATIONS Revenues from customer contracts include in particu- lar revenues from the sale of products (primarily new and pre-owned vehicles and related products) as well as revenues from services. Revenue is recognised when control is transferred to the dealership or retail customer. In the case of sales of products, this is usually at the point in time when the risks and rewards of ownership are transferred. Revenues are stated net of settlement discount, bonuses and rebates as well as interest and residual value subsidies. The consideration arising from these sales usually falls due for payment immediately or within 30 days. In exceptional cases, a longer payment may also be agreed. In the case of services, control is transferred over time. Consideration for the rendering of services to customers usually falls due for payment at the beginning of a contract and is therefore deferred as a contract liability. The deferred amount is released over the service period and recognised as revenue in the income statement. As a rule, amounts are released on the basis of the expected expense trend, as this best reflects the performance of the service. If the sale of products includes a determinable amount for services (multiple-component contracts), the related revenues are deferred and recognised as income in the same way. Variable consideration components, such as bonuses, are measured at the expected value, and in the case of multi-component contracts, allocated to all performance obligations unless directly attributable to the sale of a vehicle. Revenues from the sale of products, for which re- purchase arrangements are in place, are not recognised immediately in full. Instead, revenues are either rec- ognised proportionately or the difference between the sales and repurchase price recognised in instalments over the term of the contract depending on the nature of the agreement. In the case of vehicles sold to a dealership that are expected to be repurchased in a subsequent period as part of leasing operations, revenues are not recognised at Group level at the time of the sale of the vehicle. Instead, assets and liabilities relating to the right of return vehicles are recognised. Revenues from leases of own-manufactured vehicles are recognised at Group level in accordance with the re- quirements for manufacturer or dealer leases. In the case of operating leases, revenues from lease payments are recognised on a straight-line basis over the lease term. In the case of finance leases, revenues are recognised at the lease commencement date at the amount of the fair value of the leased asset and reduced by any unguaranteed residual value of vehicles that are expected to be returned to the Group at the end of the lease term. Similarly, cost of sales is reduced for unguaranteed residual values. In addition, initial direct costs are recognised as cost of sales at the lease commencement date. Revenues also include interest income from financial services. Interest income arising on finance leases as well as on retail customer and dealership financing is recog- nised using the effective interest method and reported as interest income on credit financing within revenues. Public sector grants are not recognised until there is reasonable assurance that the conditions attaching to them have been complied with and the grants will be received. The resulting income is recognised in cost of sales over the periods in which the costs occur that they are intended to compensate. Earnings per share are calculated as follows: Basic earnings per share are calculated for common and pre- ferred stock by dividing the net profit for the year after minority interests and attributable to each category of stock, by the average number of outstanding shares. Net profit for the year is accordingly allocated to the different categories of stock. The portion of the net profit that is not being distributed is allocated to each category of stock based on the number of outstanding shares. Profits available for distribution are determined directly on the basis of the dividend proposals or resolutions for com- mon and preferred stock. Diluted earnings per share are calculated and separately disclosed in accordance with IAS 33. Intangible assets are measured at acquisition or man- ufacturing cost. Intangible assets with finite useful lives are amortised on a straight-line basis over their useful lives of between three and 20 years. Impairment losses are recognised where necessary. Intangible assets with indefinite useful lives are tested annually for impairment. Internally generated intangible assets mainly comprise development costs for vehicle, module and architecture projects. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 198 Development costs are capitalised if all of the criteria specified by IAS 38 are met. They are measured on the basis of direct costs and directly attributable overhead costs. Project-related capitalised development costs are amortised on a straight-line basis following the start of production over the estimated product life (usually seven to twelve years). Goodwill arises on first-time consolidation of an acquired business when the cost of acquisition exceeds the Group’s share of the net fair value of the assets, li- abilities and contingent liabilities identified during the acquisition. Intangible assets also include emission allowances and similar rights arising from programmes aimed at reducing carbon or other climate-damaging emissions (for example in conjunction with the EU Emissions Trading System or vehicle-related emissions regulations in the USA or China). These allowances and rights are carried at cost and, in the event that they are allocated free of charge, recorded at a value of zero. Amounts are derecognised at the date of the return, sale or expiry of the allowances or rights. In parallel to the recognition of these allow- ances and rights as assets, provisions are recognised in accordance with IAS 37 corresponding to the amount of obligations expected to arise in conjunction with the related emission regulations. Provisions are measured on the basis of the expected value of the allowances or rights that are to be returned. If there is any indication of impairment of intangible assets, or if an annual impairment test is required (i. e. intangible assets with an indefinite useful life, intangible assets during the development phase and goodwill), an impairment test is performed. Each individual asset is tested separately unless the cash flows generated by the asset are not sufficiently independent from the cash flows generated by other assets or other groups of assets. In these cases, impairment is tested at the level of a cash-generating unit, which is the norm for the BMW Group. For the purpose of the impairment test, the carrying amount of an asset (or a cash-generating unit) is com- pared with the recoverable amount. The first step of the impairment test is to determine the value in use. If the value in use is lower than the carrying amount, the next step is to determine the fair value less costs to sell and compare the amount so determined with the asset’s car- rying amount. If the fair value is lower than the carrying amount, an impairment loss is recognised, reducing the carrying amount to the higher of the asset’s value in use or fair value less costs to sell. If the reason for a previously recognised impairment loss no longer exists, the impairment loss is reversed up to the level of the recoverable amount, but no higher than the amortised acquisition or manufacturing cost. Impairment losses on goodwill are not reversed. As part of the process of assessing recoverability, it is generally necessary to apply estimations and assump- tions – in particular regarding future cash inflows and outflows and the length of the forecast period – which could differ from actual amounts. Actual amounts may differ from the assumptions and estimations used if business conditions develop differently to expectations. The BMW Group determines the value in use on the basis of a present value computation. Cash flows used for this calculation are derived from long-term forecasts approved by management. These long-term forecasts are based on detailed forecasts drawn up at an operational level, covering a planning period of six years. For the purposes of calculating cash flows beyond the planning period, a perpetual annuity return is assumed which does not take growth into account. Forecasting assump- tions are continually adjusted to current information and regularly compared with external sources. The assump- tions used take account in particular of expectations of the profitability of the product portfolio, future market share development, macroeconomic developments (such as currency, interest rate and raw materials prices) as well as the legal environment and past experience. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 199 Amounts are discounted on the basis of a market-re- lated cost of capital rate. Impairment tests are performed for accounting and financial reporting purposes for the Automotive and Motorcycles cash-generating units using a risk-adjusted pre-tax cost of capital (WACC). In the case of the Financial Services cash-generating unit, a pre-tax cost of equity capital is used, as is customary in the sector. The following discount factors were applied: in % Automotive Motorcycles Financial Services 2020 2019 10.2 10.2 13.2 10.9 10.9 11.5 manufacturing process as well as an appropriate pro- portion of production-related overheads. This includes production-related depreciation and amortisation as well as an appropriate proportion of administrative and social costs. Financing costs are not included in acquisition or manufacturing cost unless they are directly attributable to the asset. The carrying amount of items of depreciable property, plant and equipment is written down according to scheduled usage-based depreciation – as a general rule on a straight-line basis – over the useful lives of the assets. Depreciation is recorded as an expense in the income statement. The following useful lives are applied throughout the BMW Group: in years The risk-adjusted discount rate, calculated using a CAPM model, also takes into account specific peer-group information relating to beta-factors, capital structure data and borrowing costs. In conjunction with the impairment tests for cash-generating units, sensitivity analyses are performed for the main assumptions in order to rule out that possible changes to the assumptions used to determine the recoverable amount would result in the requirement to recognise an impairment loss. Even in the case of a 10 % deterioration in the individual measure- ment assumptions, the need to recognise an impairment loss did not arise. Factory and office buildings, residential buildings, fixed installations in buildings and outside facilities Plant and machinery Other equipment, factory and office equipment 8 to 50 3 to 21 2 to 25 For machinery used in multiple-shift operations, depreciation rates are increased to account for the addi- tional utilisation. If there is any indication of impairment of property, plant and equipment, an impairment test is performed as described above for intangible assets. All items of property, plant and equipment are measured at acquisition or manufacturing cost less accumulated depreciation and accumulated impairment losses. The cost of internally constructed plant and equipment comprises all costs which are directly attributable to the In the case of leased items of property, plant and equipment, a right-of-use asset and a liability for the out- standing lease payments are recognised with effect from the date on which the leased asset becomes available for use by the BMW Group. The acquisition cost for the right-of-use asset is calculated as the sum of the present value of the future lease payments, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee and the estimated costs of dismantling, removing or restoring the leased asset. Lease incentives granted by the lessor are deduct- ed. Right-of-use assets are depreciated on a straight-line basis over the shorter of the useful life of the leased asset and the expected lease term. If ownership of the leased asset is automatically transferred at the end of the lease term or the exercise of a purchase option is reflected in the lease payments, the right-of-use asset is amortised on a straight-line basis over the expected useful life of the leased asset. Right-of-use assets are reported in the balance sheet within the relevant line items for property, plant and equipment. The amortisation expense on right- of-use assets is reported in the income statement in cost of sales as well as in selling and administrative expenses. The lease liability is measured on initial recognition at the present value of the future lease payments. Sub- sequent to initial recognition, the carrying amount of the lease liability is increased to reflect interest on the lease liability and reduced, without income statement impact, by the lease payments made. Lease liabilities are reported within financial liabilities, while interest expense is reported as part of net interest result. In the cash flow statement, both the repayment portion and the interest portion of lease payments are shown as cash outflows from financing activities. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 200 The lease payments to be taken into account to meas- ure the right-of-use asset and the lease liability comprise fixed payments, variable lease payments that depend on an index or an interest rate as well as amounts expected to be payable under residual value guarantees. If it is reasonably certain that a purchase or lease extension option will be exercised, the relevant payments are also included. Payments for periods for which the lessee has an option to terminate a lease unilaterally are only included in the lease payments if it is reasonably certain that the termination option will not be exercised. For the purposes of assessing options, the BMW Group takes account of all facts and circumstances that create an eco- nomic incentive to exercise or not to exercise the option. IFRS 16 requires that lease payments are discounted as a general rule using the interest rate implicit in the lease. However, since the interest rate in leases entered into by the BMW Group cannot readily be determined, amounts are discounted on the basis of the incremental borrowing rate, comprising the risk-free interest rate in the relevant currency for matching maturities plus a premium for the credit risk. Specific risks attached to an asset are generally not taken into account, given that collateral received in the context of alternative financing arrangements is not relevant within the BMW Group. Determining which items are to be counted as lease payments – including the issue of the lease term under- lying those payments – and which discount rate to apply involves using estimates and assumptions that may differ from actual outcomes. As lessee, the BMW Group makes use of the applica- tion exemptions available for short-term leases and leases of low-value assets. market data as well as on forecasts of external institu- tions. Furthermore, assumptions are regularly validated by comparison with external data. The BMW Group has not applied the exemptions available to lessees to account for COVID-19-related rent concessions (amendment to IFRS 16 dated 28 May 2020). Group products recognised by BMW Group entities as leased products under operating leases are measured at manufacturing cost and all other leased products at acquisition cost, in each case including initial direct costs. All leased products are depreciated over the period of the lease using the straight-line method down to their expected residual value. Where the recoverable amount of a lease exceeds the asset’s carrying amount, changes in residual value expectations are recognised by adjusting scheduled depreciation prospectively over the remain- ing term of the lease. If the recoverable amount is lower than the asset’s carrying amount, an impairment loss is recognised for the shortfall. A test is carried out at each balance sheet date to determine whether an impairment loss recognised in prior years no longer exists or has de- creased. In such cases, the carrying amount of the asset is increased to the recoverable amount, at a maximum up to the amount of the asset’s amortised cost. Investments accounted for using the equity method are measured – provided no impairment has been recog- nised – at cost of investment adjusted for the Group’s share of earnings and changes in equity capital. If there is any indication that an investment is impaired, an im- pairment test is performed on the basis of a discounted cash flow method. An indicator exists, for example, in the event of a serious shortfall compared to budget, the loss of an active market or if funds are required to avoid insolvency. With the exception of lease receivables, financial assets are measured on initial recognition at their fair value. Financial assets include in particular other investments, receivables from sales financing, marketable securities and investment funds, derivative financial assets, trade receivables and cash and cash equivalents. As a gen- eral rule, initial recognition takes place as soon as the BMW Group becomes a party to a contract; in the case of standard purchases or sales of non-derivative financial assets, initial recognition takes place at the settlement date. Assumptions and estimations are required regarding future residual values, since these represent a significant part of future cash inflows. Relevant factors to be consid- ered include the trend in market prices and demand on the pre-owned automobile market. The assumptions are based on internally available historical data and current Depending on the business model and the structure of contractual cash flows, financial assets are classified as measured at amortised cost, at fair value through comprehensive income or at fair value through profit or loss. The category “measured at fair value through comprehensive income” at the BMW Group comprises BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 201 mainly marketable securities and investment funds used for liquidity management purposes. Selected marketable securities and investment funds, money market funds within cash and cash equivalents as well as convertible bonds are recognised at fair value through profit or loss, as their contractual cash flows do not solely represent payments of principal and interest. The BMW Group does not make use of the option to measure equity instruments at fair value through other comprehensive income or debt instruments at fair value through profit or loss. The market values of financial instruments measured at fair value are determined on the basis of market infor- mation available at the balance sheet date, such as quoted prices or using appropriate measurement methods, in particular the discounted cash flow method. Items reported under other investments within the scope of IFRS 9 are measured at fair value through profit or loss. Investments in subsidiaries, joint arrangements and associated companies that are not material to the BMW Group are also included in other investments. Receivables from sales financing are measured at amortised cost using the effective interest rate method. Operating lease receivables due for payment at the end of the reporting period and included in this balance sheet line item are also measured on this basis, and the related vehicles reported as leased products. Receivables from sales financing also include finance lease receivables which are measured at the amount of the net investment in the lease. With the exception of receivables from operating leases and trade receivables, the BMW Group applies the general approach described in IFRS 9 to deter- mine impairment of financial assets. Under the general approach, loss allowances are measured on initial recog- nition on the basis of the expected 12-month credit loss (stage 1). If the credit loss risk at the end of the reporting period has increased significantly since initial recog- nition, the impairment allowance is measured on the basis of lifetime expected credit losses (stage 2 – general approach). The measurement of the change in default risk is based on a comparison of the default risk at the date of initial recognition and at the end of the reporting period. The default risk at the end of each reporting period is determined on the basis of credit checks, current key performance indicators and any overdue payments. The BMW Group applies the simplified approach de- scribed in IFRS 9 to operating lease and trade receivables, whereby the amount of the loss allowance is measured subsequent to the initial recognition of the receivable on the basis of lifetime expected credit losses (stage 2 – simplified approach). For the purposes of allocating at item to stage 2, it is irrelevant whether the credit risk of the assets concerned has increased significantly since initial recognition. As a general rule, the BMW Group assumes that a receivable is in default if it is more than 90 days overdue or if there are objective indications of insolvency, such as the opening of insolvency proceedings. Credit-impaired assets are identified as such on the basis of this definition of default. In the case of credit-impaired assets which had not been credit-impaired at the time they were acquired or originated, an impairment allowance is recognised at an amount equal to lifetime expected credit losses (stage 3). This is the case regardless of whether the general or simplified approach is applied. In the case of stage 3 as- sets, interest income is calculated on the asset’s carrying amount less any impairment loss. The BMW Group derecognises financial assets when it has no reasonable expectation of recovery. This may be the case, for instance, if the debtor is deemed not to have sufficient assets or other sources of income to service the debt. Loss allowances relating to the balance sheet item “Receivables from sales financing” are determined pri- marily on the basis of past experience with credit losses, current data on overdue receivables, rating classes and scoring information. Forward-looking information (for instance forecasts of key performance indicators) is also taken into account if, based on past experience, such indicators show a substantive correlation to actual credit losses. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Loss allowances on trade receivables are determined primarily on the basis of information relating to overdue amounts. Input factors available on the market, such as ratings and probabilities of default, are used to calcu- late valuation allowance for cash and cash equivalents, financial receivables, receivables from subsidiaries and receivables from companies in which an investment is held. In the case of marketable securities and investment funds, the BMW Group usually applies the option not to allocate financial assets with a low default risk to differ- ent stages. Accordingly, assets with an investment grade rating are always allocated to stage 1. Expected credit losses are only presented separately if they are material for the BMW Group Financial State- ments. Derivative financial instruments are used within the BMW Group for hedging purposes in order to reduce currency, interest rate, fair value and market price risks. Derivative financial instruments are recognised as of the trade date, measured at their fair value. Depending on their market value at measurement date, these financial instruments are reported in the balance sheet as financial assets or financial liabilities. Fair values are determined on the basis of valuation models. Observable market price, tenor and currency basis spreads are taken into account in the measurement of derivative financial instruments. Furthermore, the Group’s own credit risk and that of counterparties is taken into account on the basis of credit default swap values for market contracts with matching terms. 202 The BMW Group applies the option to recognise the credit risks arising from the fair values of a group of derivative financial assets and liabilities on the basis of their total net amount. Portfolio-based valuation adjust- ments (credit valuation adjustments and debit valuation adjustments) to the individual derivative financial assets and financial liabilities are allocated using the relative fair value approach (net method). Where hedge accounting is applied, changes in fair value of derivative financial instruments are presented as part of other financial result in the income statement or within other comprehensive income as a component of accumulated other equity, depending on whether the hedging relationship is classified as a fair value hedge or a cash flow hedge. Fair value hedges are mainly used to hedge interest rate risks relating to financial liabilities. The currency basis is not designated as part of the hedging relationship in the case of cross currency interest rate hedges account- ed for as fair value hedges. Accordingly, changes in the market value of such components are recorded as costs of hedging within accumulated other equity. Amounts accumulated in equity are reclassified to other financial result within the income statement over the term of the hedging relationship. In addition, for selected fixed-interest assets, a portion of the interest rate risk is hedged on a portfolio basis in accordance with IAS 39. The designated hedged items (underlying transactions) are reported in the balance sheet as receivables from sales financing and financial liabilities. In this case, swaps are used as the hedging instrument. Hedge relationships are terminated and redesignated on a monthly basis at the end of each reporting period, thereby taking account of the constant- ly changing content of each portfolio. Fair value hedge ineffectiveness is generally recog- nised in other financial result. The time values of option transactions and the in- terest component – including the currency basis – of forward currency contracts are not designated as part of the hedging relationship in the case of currency hedges accounted for as cash flow hedges. Changes in the fair value of such components are recorded as costs of hedg- ing on a separate line within accumulated other equity. Amounts recorded in accumulated other equity from currency hedges are reclassified to cost of sales when the related hedged item is recognised in profit or loss. In the case of raw materials hedges that are account- ed for as cash flow hedges, the hedging instruments are designated in full as part of the hedging relationship. As an exception to this general rule, the interest component of raw materials derivative instruments redesignated in conjunction with the first-time application of IFRS 9 was not designated as part of the hedging relationship. Changes in the fair value of this component are recorded as costs of hedging on a separate line within accumulated other equity. Amounts recorded in accumulated other equity are included in the carrying amount of inventories on initial recognition. Ineffectiveness arising on cash flow hedges is rec- ognised directly in cost of sales, whereas the impact of terminated hedging relationships is recognised in other operating income and expenses. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 203 Deferred income taxes are recognised for all tempo- rary differences between the tax and accounting bases of assets and liabilities, including differences arising on consolidation procedures, as well as on unused tax losses and unused tax credits, to the extent that they can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply for the period when the asset is realised or the liability settled, based on tax rates and tax laws that have been enacted or sub- stantively enacted at the balance sheet date. The recoverability of deferred tax assets is assessed at each balance sheet date on the basis of planned taxable income in future financial years. If with a probability of more than 50 percent future tax benefits will not be realised, either in part or in total, a valuation allowance is recognised on the deferred tax assets. The calculation of deferred tax assets requires assumptions to be made with regard to the level of future taxable income and the timing of recovery of deferred tax assets. These assump- tions take account of forecast operating results and the impact on earnings of the reversal of taxable temporary differences. Since future business developments cannot be predicted with certainty and to some extent cannot be influenced by the BMW Group, the measurement of deferred tax assets is subject to uncertainty. Deferred tax liabilities on taxable temporary differ- ences arising from investments in subsidiaries, branches and associated companies as well as interests in joint arrangements are not recognised if the Group is able to control the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future. This is particularly the case if it is intended that profits will not be distributed, but rather will be used to maintain the substance and expand the volume of business of the entities concerned. Current income taxes are calculated within the BMW Group on the basis of tax legislation applicable in the relevant countries. To the extent that judgement was necessary to determine the treatment and amount of tax items presented in the financial statements, there is in principle a possibility that local tax authorities may take a different position. As a general rule, each income tax treatment is con- sidered independently when accounting for uncertainties in income taxes. If it is not considered probable that an income tax treatment will be accepted by the local tax authorities, the BMW Group uses the most likely amount of the tax treatment when determining taxable profit and the tax base. Inventories of raw materials, supplies and goods for resale are stated at the lower of average acquisition cost and net realisable value. Work in progress and finished goods, as well as ve- hicles held for sale in the financial services business, are stated at the lower of manufacturing cost and net realisa- ble value. Manufacturing cost comprises all costs which are directly attributable to the manufacturing process as well as an appropriate proportion of production-related overheads. This includes production-related deprecia- tion and amortisation and an appropriate proportion of administrative and social costs. Financing costs are not included in the acquisition or manufacturing cost of inventories. Cash and cash equivalents comprise mainly cash on hand and cash at bank with an original term of up to three months. With the exception of money market funds, cash and cash equivalents are measured at am- ortised cost. Financial liabilities, with the exception of lease lia- bilities, are measured on first-time recognition at their fair value. For these purposes, transaction costs are taken into account except in the case of financial lia- bilities allocated to the category “measured at fair value through profit or loss”. Subsequent to initial recognition, liabilities are – with the exception of derivative financial instruments – measured at amortised cost using the ef- fective interest method. Provisions for pensions are measured using the projected unit credit method. Under this method, not only obligations relating to known vested benefits at the reporting date are recognised, but also the effect of future expected increases in pensions and salaries. The calculation is based on independent actuarial valuations which take into account the relevant biometric factors. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements In the case of funded plans, the pension obligation is offset against plan assets measured at their fair value. If the plan assets exceed the pension obligation, the surplus is tested for recoverability. In the event that the BMW Group has a right of reimbursement or a right to reduce future contributions, it reports an asset (within Other financial assets), measured on the basis of the present value of the future economic benefits attached to the plan assets. For funded plans, in cases where the obligation exceeds plan assets, a liability is recognised under pension provisions. The calculation of the amount of the provision re- quires assumptions to be made with regard to discount rates, salary trends, employee fluctuation and the life expectancy of employees. Discount rates are determined by reference to market yields at the end of the reporting period on high quality fixed-interest corporate bonds. The salary trend relates to the expected future rate of salary increase which is estimated annually based on in- flation and the career development of employees within the Group. Net interest expense on the net defined benefit lia- bility or net interest income on the net defined benefit assets are presented within the financial result. All other costs relating to allocations to pension provisions are allocated to costs by function in the income statement. Past service cost arises where a BMW Group company introduces a defined benefit plan or changes the benefits payable under an existing plan. This cost is recognised immediately in the income statement. Similarly, gains and losses arising on the settlement of a defined benefit plan are recognised immediately in the income statement. 204 Remeasurement of the net liability can result from changes in the present value of the defined benefit ob- ligation, the fair value of the plan assets or the asset ceiling. Remeasurement can result, amongst others, from changes in financial and demographic parameters, as well as changes following the portfolio development. Remeasurements are recognised immediately through other comprehensive income and ultimately in equity (within revenue reserves). Other provisions are recognised when the BMW Group has a present legal or factual obligation towards a third party arising from past events, the settlement of which is probable, and when the amount of the obligation can be reliably estimated. Provisions with a remaining period of more than one year are measured at their net present value. The measurement of provisions for statutory and non-statutory warranty obligations (statutory, contrac- tual and voluntary) involves estimations. In addition to manufacturer warranties prescribed by law, the BMW Group offers various further standard (assurance- type) warranties depending on the product and sales market. No provisions are recognised for additionally offered service packages that are treated as separate performance obligations. Provisions for statutory and non-statutory warranties are recognised at the point in time when control over the goods is transferred to the dealership or retail cus- tomer or when it is decided to introduce new warranty measures. With respect to the level of the provision, esti- mations are made in particular based on past experience of damage claims and processes. Future potential repair costs and price increases per product and market are also taken into account. Provisions for warranties for all companies of the BMW Group are adjusted regularly to take account of new information, with the impact of any changes recognised in the income statement. Further information is provided in note 33. Similar estimates are also made in conjunction with the measurement of expected reimbursement claims. The recognition and measurements of provisions for litigation and liability risks necessitates making assump- tions in order to determine the probability of liability, the amount of claim and the duration of the legal dispute. The assumptions made, especially the assumption about the outcome of legal proceedings, are subject to a high degree of uncertainty. The appropriateness of assump- tions is regularly reviewed, based on assessments under- taken both by management and external experts, such as lawyers. If new developments arise in the future that result in a different assessment, provisions are adjusted accordingly. If the recognition criteria relevant for provisions are not fulfilled and the outflow of resources on fulfilment is not unlikely, the potential obligation is disclosed as a contingent liability. Related party disclosures comprise information on as- sociated companies, joint ventures and non-consolidated subsidiaries as well as individuals which have the ability to exercise a controlling or significant influence over the financial and operating policies of the BMW Group. This includes all persons in key positions of the Company, as well as close members of their families or intermediary entities. In the case of the BMW Group, this also ap- plies to members of the Board of Management and the Supervisory Board. Details relating to these individuals note 40 and in the list of and entities are provided in investments disclosed in note 46. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Share-based remuneration programmes which are expected to be settled in shares are measured at their fair value at grant date. The related expense is recognised as personnel expense in the income statement over the vesting period and offset against capital reserves. Share- based remuneration programmes expected to be settled in cash are revalued to their fair value at each balance sheet date between the grant date and the settlement date and on the settlement date itself. The expense is recognised as personnel expense in the income statement over the vesting period and presented in the balance sheet as a provision. The share-based remuneration programme for Board of Management members and senior heads of department entitles BMW AG to elect whether to settle its commitments in cash or with shares of BMW AG common stock. Based on the decision to settle in cash, the share-based remuneration programmes for Board of Management members and senior heads of department are accounted for as cash-settled, share-based remuner- ation programmes. Further information on share-based remuneration programmes is provided in note 41. 06 IMPACT OF THE CORONAVIRUS PANDEMIC ON THE FINANCIAL STATEMENTS GENERAL SITUATION The BMW Group’s earnings for the financial year 2020 have been negatively impacted by the course of the coronavirus pandemic and the related measures put in place to contain the virus. Whereas the main negative factors in the first quarter were the drop in demand in China and the closure of dealerships in a few other markets, business in the sec- ond quarter was adversely impacted by the global spread of the pandemic affecting other key sales markets of the BMW Group. Although customer demand increased in many markets during the second half of the year, the repercussions of the coronavirus pandemic on business in the first half of the year continued to be felt. This is reflected in particular in the decline in revenues, main- ly due to the lower number of vehicle sales and lower revenues from spare parts. The decline in vehicle sales was also reflected in cost of sales, whereby fixed costs fell on a less pronounced scale by comparison to the reduction in capacity utilisation levels. Group earnings were also negatively impacted by higher risk provisioning expenses relating in particular to the reassessment of residual value and credit risks. 205 Due to lower new leasing business as well as lower expected new leasing business, the amount of revenues eliminated on consolidation fell compared to the previ- ous year. The year-on-year decrease in selling and adminis- trative expenses mainly reflected the reduction in com- munication, marketing and travel expenses arising as a result of the containment measures implemented in connection with the coronavirus pandemic. Short-time work allowances received have been netted in the income statement against the corresponding expenses. In light of the developments described above, Group net profit was significantly lower than in the previous year. Significant effects on the Group Financial Statements are described below. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements ACCOUNTING POLICIES Impairment tests The increasing global spread of the coronavirus and the related low market capitalisation of BMW AG gave rise to an indication that tangible and intangible assets of the BMW Group could be impaired. As a result, im- pairment tests were performed for the Automotive, Mo- torcycles and Financial Services cash-generating units. In this context, values in use were determined on the basis of updated long-term forecasts that already reflect adjustments to expectations made in light of coronavi- rus. Against this backdrop, it was decided not to include probability-weighted scenarios. A detailed description of the methodology applied to perform impairment tests is provided in note 5. From the BMW Group’s perspective, the spread of coronavirus also provided an indication of impairment relating to investments accounted for using the equity method. The exception to this general consideration was the BMW Brilliance Automotive joint venture in China, given the rapid economic recovery registered in that region. Further information is provided in note 24. 206 De-designation of hedge relationships For the purposes of accounting for currency and commodity hedges, coronavirus-related effects on sales and production were taken into account as unscheduled exposure updates. If the hedged item was no longer expected to occur, the hedge relationships were de- designated. The corresponding amounts were then re- classified immediately from other comprehensive income to profit and loss (other operating income and expenses). Residual value risk For the purposes of measuring and accounting for re- sidual value risks, discretionary adjustments were made to the expected market values of vehicles in order to take account of the effects of the pandemic that are not con- sidered in the existing measurement models (post-model adjustments). The adjustments were determined using a market-specific approach, thereby taking account of the varying effects and measures arising in each market as well as the structure of the valuation models. In the case of the US market, past experience relevant for market value changes arising during the financial crisis was taken into account in the calculation of post-model adjustments. In the case of the UK and Canadian markets, the procedures applied also included projections drawn up by external providers on the impact of the coronavirus pandemic. In all cases, assumptions pertaining to the scale and duration of the pandemic’s ef- fects took account of current market value developments. If the regression models used were highly affected by market values realised in recent months, the outcomes were adjusted for exceptionally positive results in the second half of the year for instance, in the UK and the Netherlands. In the case of the Belgian and German mar- kets, for instance, procedures included the derivation of a number of macroeconomic scenarios to calculate the potential impact on pre-owned vehicle valuations. Probabilities were weighted where necessary, taking into account external indicators (e. g. consumer confidence indices) and internal indicators (e. g. inventory trends). In some cases, including for the French market, macro- economic parameters based on current risk estimates were adjusted. Discretionary model adjustments are regularly re- viewed in order to ensure that allowances for residual value losses are continuously updated on the basis of expected market values. In light of the volatile market environment and the current high level of uncertainty surrounding the future course of the coronavirus pan- demic, only limited conclusions can be drawn from the recent improvement in market values observed on pre- owned automobile markets. A summary of the relevant values is provided in note 23. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Credit risk I. Receivables from sales financing In connection with the coronavirus pandemic, al- lowances for expected credit losses were increased to take account of the negative impact on retail customer and dealership business, to the extent not covered by the BMW Group’s standard loss provisioning models (post-model adjustments). In the case of retail customer business, portfolios were measured taking into account market-specific qualitative factors with the aim of identifying particu- larly affected portfolio segments (such as the tourism sector). This assessment was based on local expertise and took into account various scenarios, including the number of payment deferral applications, government measures and additional qualitative portfolio data. For the identified portfolio segments affected, amounts were reclassified from stage 1 (impairment allowance based on the 12-month expected credit losses) to stage 2 (impair- ment allowance based on lifetime expected credit losses), resulting in the recognition of additional risk allowances. Credit risk parameters were otherwise left unchanged. In the case of dealership business, creditworthiness expectations of individual dealerships were assessed on the basis of market-specific scenarios, including 207 downgrades based on adjusted expectations of future business performance. In this context, increased default probabilities were assigned to dealerships that could be exposed to deteriorating business conditions as a result of the coronavirus pandemic. However, this reassessment did not result in amounts being reclassified from stage 1 to stage 2 or stage 3. Instead, additional impairment allowances were recognised to take account of the higher anticipated risk of default. overdue status of these receivables is seen as a risk. A simulated reclassification of receivables to a higher over- due band was run, taking account of macroeconomic influencing factors, the development of the gross domes- tic product (GDP), of the countries concerned. An addi- tional allowance for expected credit losses was calculated and recorded on the basis of this simulation. Further information on the calculation of valuation allowances in accordance with IFRS 9 is provided in note 5. Overall, the additional impairment losses described above were offset by a volume-related decrease in receiv- ables. The lower level of impairment allowances com- pared to 31 December 2019 therefore arose as a result of the lower level of receivables overall. A summary of the relevant values is provided in note 30. Furthermore, additional scenarios were considered for the economic development of individual markets (for example, the UK), for which an increased level of uncertainty exists. In addition, in light of current risk assessments, macroeconomic parameters were adjusted to take account of specific circumstances in some markets (for instance, South Africa and Malaysia). A summary of the values is provided in note 25. II. Trade receivables The effects of a higher risk on receivables within stage 2 were calculated using a scenario model as the basis for recognising additional credit risk allowances for trade receivables. The standard model used by the BMW Group to determine expected credit losses is unable – at present – to appropriately take account of the impact of the coronavirus pandemic. An increasing BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements NOTES TO THE INCOME STATEMENT 07 REVENUES Revenues by activity comprise the following: in € million 2020 2019 Sales of products and related goods 67,548 73,433 Sales of products previously leased to customers Income from lease instalments Interest income on loan financing and finance leases Revenues from service contracts, telematics and roadside assistance Other income Revenues 11,345 11,322 11,020 10,746 3,677 3,996 2,763 2,335 2,820 2,195 98,990 104,210 Revenues recognised from contracts with customers in accordance with IFRS 15 totalled € 83,814 million (2019: € 89,610 million). 208 An analysis of revenues by segment is shown in the explanatory comments on segment information provided in note 45. Revenues from the sale of products and re- lated goods are generated primarily in the Automotive segment and, to a lesser extent, in the Motorcycles segment. Revenues from the sale of products previously leased to customers, income from lease instalments and interest income on loan financing are allocated to the Financial Services segment. Other income relates mainly to the Automotive segment and the Financial Services segment. The major part of revenues expected to arise from the Group’s order book at the end of the reporting period relates to the sale of vehicles. Revenues resulting from those sales will be recognised in the next financial year. The services included in vehicle sale contracts that will be recognised as revenues in subsequent years represent only an insignificant portion of expected revenues. Ac- cordingly, use has been made of the practical expedient contained in IFRS 15, permitting an entity not to disclose information on a quantitative basis due to the short-term nature of items and the lack of informational value of such disclosures. Interest income on loan financing and finance leases includes interest calculated on the basis of the effective interest method totalling € 3,424 million (2019: € 3,687 million). This interest income is not reported separately in the income statement as it is not significant compared to total Group revenues. 08 COST OF SALES Cost of sales comprises: in € million 2020 2019* Manufacturing costs 46,878 48,776 Cost of sales relating to financial services business thereof: interest expense relating to financial services business Research and development expenses Expenses for service contracts, tele- matics and roadside assistance Warranty expenditure Other cost of sales Cost of sales * Prior year’s figures adjusted. 27,114 25,828 1,960 5,689 1,411 2,971 1,345 2,288 5,952 1,641 2,566 1,384 85,408 86,147 Cost of sales is reduced by public-sector subsidies in the form of reduced taxes on assets and reduced con- sumption-based taxes amounting to € 105 million (2019: € 105 million). Other cost of sales included expenses that were able to be allocated to manufacturing costs or cost of sales relating to financial services business. Prior year figures have been adjusted accordingly. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 209 Impairment losses recognised in the income state- ment 2020 in connection with receivables from sales financing amounted to € 646 million (2019: € 219 million). In view of the fact that the impairment losses are of minor importance compared to total Group cost of sales, they have not been disclosed separately in the income statement. Research and development expenditure was as follows: in € million 2020 2019 Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 5,689 – 1,710 5,952 – 1,667 2,300 2,134 6,279 6,419 09 SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses relate mainly to expenses for marketing and communication, personnel and IT. in € million 2020 2019 Selling expenses Administrative expenses Total selling and administrative expenses 5,300 3,495 5,656 3,711 8,795 9,367 10 OTHER OPERATING INCOME AND EXPENSES Other operating income and expenses comprise the following items: in € million Exchange gains Income from the reversal of provisions Income from the reversal of impairment losses and write-downs Gains on the disposal of assets Sundry operating income Other operating income Exchange losses Expense for additions to provisions Expense for impairment losses and write-downs Loss on the disposal of assets Sundry operating expenses Other operating expenses 2020 326 114 164 30 282 916 – 286 – 157 – 47 – 117 – 266 – 873 2019 148 433 8 41 401 1,031 – 181 – 1,732 – 173 – 20 – 210 – 2,316 Other operating income and expenses 43 – 1,285 Income from the reversal of and expenses for the recognition of impairment allowances and write-downs relate mainly to impairment allowances on receivables. Impairment losses recognised on receivables from contracts with customers amounted to € 47 million (2019: € 48 million). The expense for additions to provisions includes liti- gation and other legal risks. Income from the reversal of provisions includes income arising on the reassessment of risks from legal disputes. In the previous year, an expense of approximately € 1.4 billion was also recognised in connection with the ongoing anti-trust proceedings carried out by the Euro- pean Commission (see also note 10 to the BMW Group Financial Statements for the financial year 2019). In December 2019, the BMW Group submitted a detailed response to the European Commission regarding the latter’s Statement of Objections. A decision by the Eu- ropean Commission is pending. There was no impact on the income statement in the financial year 2020. The financial impact cannot be definitively assessed at this point in time. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 210 11 NET INTEREST RESULT 12 OTHER FINANCIAL RESULT 13 INCOME TAXES 2019 in € million 2020 2019 Taxes on income of the BMW Group comprise the in € million Other interest and similar income thereof from subsidiaries: Interest and similar income Expense relating to interest impact on other long-term provisions Net interest expense on the net defined benefit liability for pension plans Other interest and similar expenses thereof subsidiaries: Interest and similar expenses Net interest result 2020 116 8 116 179 9 179 Income from investments in subsidiaries and participations thereof from subsidiaries: Expenses from investments in subsidiaries and participations – 199 – 226 Result on investments – 34 – 225 – 1 – 458 – 342 – 41 – 232 – 4 – 499 – 320 Income (+) and expenses (–) from financial instruments Sundry other financial result Other financial result 135 12 – 87 48 – 234 – 234 – 186 387 13 – 307 80 – 189 – 189 – 109 following: in € million 2020 2019 Current tax expense Deferred tax expense (+) / deferred tax income (–) thereof relating to temporary differences thereof relating to tax loss carryforwards and tax credits Income taxes 2,023 3,316 – 658 – 1,176 – 450 – 1,439 – 208 1,365 263 2,140 Sundry other financial result comprises mainly in- come and expenses arising on the measurement of stand- alone derivatives and fair value hedge relationships, as well as income and expenses from the measurement and sale of marketable securities and shares in investment funds. The tax expense was reduced by € 4 million (2019: € 30 million) as a result of utilising tax loss carryforwards, for which deferred assets had not previously been recog- nised and in conjunction with previously unrecognised tax credits and temporary differences. The tax expense resulting from the change in the valuation allowance on deferred tax assets relating to tax losses available for carryforward and temporary differences amounted to € 10 million (2019: € 7 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Deferred taxes are determined on the basis of tax rates which are currently applicable or expected to apply in the relevant national jurisdictions when the amounts are recovered. After taking account of an average muni- cipal trade tax multiplier rate (Hebesatz) of 428,0 (2019: 428,0), the underlying income tax rate for Germany was as follows: in % Corporate tax rate Solidarity surcharge Corporate tax rate including solidarity surcharge Municipal trade tax rate German income tax rate 2020 15.0 5.5 15.8 15.0 30.8 15.0 5.5 15.8 15.0 30.8 Deferred taxes for non-German entities are calculat- ed on the basis of the relevant country-specific tax rates. These ranged in the financial year 2020 between 9.0 % and 40.0 % (2019: between 9.0 % and 40.0 %). The difference between the expected tax expense based on the underlying tax rate for Germany and actual tax expense is explained in the following reconciliation: The tax increases as a result of non-deductible ex- penses mainly relate to non-recoverable withholding taxes. 211 in € million 2020 2019 Profit before tax Tax rate applicable in Germany 2019 Expected tax expense 5,222 30.8 % 1,608 7,118 30.8 % 2,192 Tax expense for prior years resulted primarily from adjustments to income tax receivables and provisions for prior years, among other things due to transfer pricing issues in conjunction with unconcluded and ongoing transfer pricing proceedings. Variances due to different tax rates – 397 – 373 Tax increases (+) / tax reductions (–) due to: Other variances include various reconciling items. Tax-exempt income Non-deductible expenses Equity accounted Tax expense (+) / benefits (–) for prior years Effects from tax rate changes Other variances Actual tax expense Effective tax rate – 97 398 – 210 61 17 – 15 1,365 26.1 % – 314 909 5 – 162 – 17 – 100 2,140 30.1 % BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The allocation of deferred tax assets and liabilities to balance sheet line items at 31 December is shown in the following table: in € million Intangible assets Property, plant and equipment Leased products Other investments Sundry other assets Tax loss carryforwards Capital Losses Provisions Liabilities Eliminations Valuation allowances on tax loss carryforwards Valuation allowances on capital losses Netting Deferred taxes Net Deferred tax assets Deferred tax liabilities 2020 17 49 282 6 1,013 476 348 6,655 3,717 3,721 2019 17 53 324 3 1,125 306 329 6,239 3,544 3,883 16,284 15,823 – 138 – 348 – 177 – 329 2020 2019 3,354 673 3,203 1 3,966 – – 33 852 1,766 13,848 – – 3,186 780 4,085 22 3,454 – – 42 647 1,539 13,755 – – – 13,339 – 13,123 – 13,339 – 13,123 2,459 1,950 2,194 1,562 509 – 632 – Tax loss carryforwards relating to Germany and foreign operations amounted to € 1,568 million (2019: € 954 million). This includes one tax-loss carryforward amounting to € 406 million (2019: € 519 million), on which a valuation allowance of € 138 million (2019: € 177 million) was recognised on the related deferred tax asset. The increase in tax losses available for carry- forward was mainly attributable to the decline in earn- ings as a consequence of the coronavirus pandemic. For entities with tax losses available for carryforward, a net surplus of deferred tax assets over deferred tax 212 liabilities is reported amounting to € 392 million (2019: € 292 million). The basis for the recognition of deferred taxes is the BMW Group business model or manage- ment’s assessment that there is material evidence that the entities will generate future taxable profit, against which deductible temporary differences can be offset. In this context, it is also expected that the loss recorded by BMW AG tax group for income tax purposes for the financial year 2020 can be utilised in full in the coming years, taking into account the minimum taxation rules in Germany. Furthermore, it is assumed that tax start-up losses relating to the San Luis Potosí plant in Mexico, opened in 2019, can be utilised by offset against planned future profits. Loss carryforwards amounting to € 1,129 million (2019: € 553 million) can be used indefinitely, while € 439 million (2019: € 401 million) expire after more than 3 years. Capital losses available for carryforward in the Unit- ed Kingdom which do not relate to ongoing operations decreased to € 1,832 million (2019: € 1,938 million) due to currency factors. As in previous years, deferred tax assets recognised on these tax losses – amounting to € 348 million at the end of the reporting period (2019: € 329 million) – were fully written down since they can only be utilised against future capital gains. Deferred tax assets and deferred tax liabilities are netted for each relevant tax entity if they relate to the same tax authorities. BMW GroupReport 2020 213 Group Financial Statements Notes to the Group Financial Statements Deferred taxes recognised directly in equity amount- ed to € 1,710 million (2019: € 2,015 million). in € million 2020 2019 * Deferred taxes at 1 January (assets (+) / liabilities (–)) Deferred tax expense (–) / income (+) recognised through income statement Change in deferred taxes recognised directly in equity thereof relating to fair value gains and losses on financial instruments and marketable securities recognised directly in equity thereof relating to the remeasurements of net liabilities for defined benefit pension plans thereof from currency translation Exchange rate impact and other changes Deferred taxes at 31 December (assets (+) / liabilities (–)) * Sign convention changed compared to previous year’s Group Financial Statements. 1,562 658 – 305 – 443 161 – 23 35 1,950 – 122 1,176 558 170 376 12 – 50 1,562 The tax returns of BMW Group entities are checked regularly by German and foreign tax authorities. Taking account of numerous factors – including interpretations, commentaries and legal decisions relating to the various tax jurisdictions as well as past experience – adequate provision has been made, to the extent identifiable and probable, for potential future tax obligations. Taxable temporary differences relating to investments in subsidiaries, associated companies and joint ventures amount to € 22,174 million (2019: € 21,215 million). No deferred taxes are recognised on these taxable temporary differences because the BMW Group is able to determine the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future, in particular in view of the fact that there is no intention to distribute the profits, but rather to use them to maintain their substance and reinvest in the companies concerned. No computation was made of the potential impact of income taxes on the grounds of proportionality. Deferred tax liabilities on expected dividends amount to € 76 million (2019: € 64 million) and relate primarily to dividends from for- eign subsidiaries and joint ventures. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 214 14 EARNINGS PER SHARE 15 PERSONNEL EXPENSES Net profit attributable to the shareholders of BMW AG € million 3,775.0 4,914.5 2020 2019 The income statement includes personnel expenses as follows: Profit attributable to common stock Profit attributable to preferred stock Average number of common stock shares in circulation Average number of preferred stock shares in circulation Basic / diluted earnings per share of common stock Basic / diluted earnings per share of preferred stock Dividend per share of common stock Dividend per share of preferred stock * Proposal by management. Earnings per share of preferred stock are computed on the basis of the number of preferred stock shares enti- tled to receive a dividend in each of the relevant financial years. As in the previous year, diluted earnings per share correspond to basic earnings per share. € million € million number number € € € € 3,448.1 326.9 4,494.4 420.1 601,995,196 601,995,196 56,867,180 56,122,857 5.73 5.75 1.90* 1.92* 7.47 7.49 2.50 2.52 in € million 2020 2019 Wages and salaries Pension and welfare expenses Social insurance expenses Personnel expenses 10,081 10,370 1,252 911 1,133 948 12,244 12,451 Personnel expenses include € 602 million (2019: € 72 million) of costs relating to workforce measures. The total pension expense for defined contribution plans of the BMW Group amounted to € 150 million (2019: € 148 million). Employer contri butions paid to state pension insurance schemes totalled € 634 million (2019: € 667 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 215 The average number of employees during the year 16 LEASES was: Average number of employees 122,874 123,868 In terms of accounting for leases as a lessee, the following amounts are included in the income statement: 2020 2019 * a As lessee thereof at proportionately-consolidated entities * Prior year’s figures adjusted. 139 – in € million 2020 2019 Expenses for leases of low-value assets and short-term leases – 91 – 94 Total cash outflows for leases in 2020 amounted to € 653 million (2019: € 591 million). Information on right-of-use assets, lease liabilities as well as further explanatory comments are provided in note 5 (Accounting policies, assumptions, judgments and estimates), note 20 (Analysis of changes in Group tangible, intangible and investment assets in 2020), note 22 (Property, plant and equipment (including note 35 right-of-use assets arising from leases)) and (Financial liabilities). The previous year’s figure was adjusted in view of the change in the internal management system (see Annual Report 2019, Group Management Report). The number of employees at the end of the reporting period is dis- closed in the Combined Management Report. Expenses relating to variable lease payments not included in the measurement of lease liabilities Interest expense arising on the measurement of lease liabilities – 13 – 55 – 3 b As lessor – 54 in € million 2020 2019 Most of the expenses for leases for low-value assets and short-term leases relate to low-value assets. The BMW Group is party to leases at the end of the reporting period which have not yet commenced. These leases could give rise to future cash outflows amounting to € 225 million (2019: € 42 million). Income from variable lease payments for operating leases Income from variable lease payments for finance leases Financial income on the net investment in finance leases Selling profit on the sale of vehicles previously leased to retail customers under finance leases * * Prior year’s figures adjusted. 148 17 890 171 19 885 1,167 1,384 Variable lease payments are based on distance driven. The agreements have, in part, extension and purchase options. BMW GroupReport 2020 216 18 GOVERNMENT GRANTS AND GOVERNMENT ASSISTANCE Income from asset-related and performance-related grants, amounting to € 67 million (2019: € 41 million) and € 210 million (2019: € 199 million) respectively, was recognised in the income statement in 2020. These amounts relate mainly to public sector grants aimed at the promotion of regional structures as well as to subsidies received for plant expansions. Group Financial Statements Notes to the Group Financial Statements 17 FEE EXPENSE FOR THE GROUP AUDITOR The fee expense pursuant to § 314 (1) no. 9 HGB recognised in the financial year 2020 for the Group auditor and the PwC network of audit firms amounted to € 18 million (2019: € 19 million) and consists of the following: in € million Audit of financial statements Other attestation services Tax advisory services Other services Fee expense PwC International thereof: PwC GmbH 2020 14 1 – 3 18 2019 14 1 1 3 19 2020 2019 4 – – – 4 4 1 – 2 7 Services provided during the financial year 2020 by the Group auditor PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, Munich branch, on behalf of BMW AG and subsidi aries under its control relate to the audit of the financial statements, other attestation services, tax advisory services and other services. The audit of financial statements comprises mainly the audit of the Group Financial Statements and the separate financial statements of BMW AG and its sub- sidiaries, and all work related thereto, including the review of the Interim Group Financial Statements. Other attestation services include mainly project- related audits, comfort letters and statutorily prescribed, contractually agreed or voluntarily commissioned attes- tation work. Tax advisory services include primarily services related to transfer pricing and tax compliance. Other services mainly include consulting services relating to production processes. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 217 NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME 19 DISCLOSURES RELATING TO THE STATEMENT OF COMPREHENSIVE INCOME Other comprehensive income for the period after tax comprises the following: in € million 2020 2019 Remeasurement of the net liability for defined benefit pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Marketable securities (at fair value through other comprehensive income) thereof gains / losses arising in the period under report thereof reclassifications to the income statement Derivative financial instruments thereof gains / losses arising in the period under report thereof reclassifications to the income statement Costs of hedging thereof gains / losses arising in the period under report thereof reclassifications to the income statement Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items that can be reclassified to the income statement in the future Other comprehensive income for the period after tax – 354 139 – 215 7 20 – 13 991 1,636 – 645 201 – 437 638 106 – 444 – 1,283 – 422 – 637 – 1,254 387 – 867 42 59 – 17 – 706 – 229 – 477 125 – 611 736 – 3 171 544 173 – 694 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Deferred taxes on components of other comprehensive income are as follows: in € million Before tax Deferred taxes After tax Before tax Deferred taxes After tax 2020 2019 218 Remeasurement of the net liability for defined benefit pension plans Marketable securities (at fair value through other comprehensive income) Derivative financial instruments Costs of hedging Other comprehensive income from equity accounted investments Currency translation foreign operations Other comprehensive income – 354 139 – 215 – 1,254 7 991 201 106 – 1,283 – 332 – 2 – 328 – 59 – 55 – – 305 5 663 142 51 – 1,283 – 637 42 – 706 125 – 3 544 387 – 12 211 – 34 6 – – 867 30 – 495 91 3 544 – 1,252 558 – 694 Other comprehensive income relating to equity accounted investments is reported in the Group State- ment of Changes in Equity within currency translation differences with a negative amount of € 113 million (2019: positive amount of € 22 million), within derivative finan- cial instruments with a positive amount of € 118 million (2019: negative amount of € 56 million) and within costs of hedging with a positive amount of € 46 million (2019: positive amount of € 37 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements NOTES TO THE BALANCE SHEET 20 ANALYSIS OF CHANGES IN GROUP TANGIBLE, INTANGIBLE AND INVESTMENT ASSETS 2020 219 1. 1. 2020 Translation differences Additions Reclassi- fications Disposals 31. 12. 2020  1. 1. 2020 Translation differences Current year Reclas si- fications Value adjustments ¹ Disposals 31. 12. 2020  31. 12. 2020  31. 12. 2019 Acquisition and manufacturing cost Depreciation and amortisation Carrying amount in € million Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land thereof right-of-use assets from leases Plant and machinery thereof right-of-use assets from leases 15,391 385 2,075 17,851 15,449 3,107 40,061 82 – – 1 – 52 – 53 – 380 – 72 – 765 – 1 2,300 – 271 2,571 621 280 1,841 8 248 41 – – 2 2 538 12 710 – 44 – 941 – 1,294 715 16,976 4,948 – 545 384 5 1,751 1,169 1,260 19,111 6,122 293 219 15,935 6,104 3,108 426 1,548 40,299 29,177 31 226 20 – 58 6 3,138 2,147 121 1,619 31 – – – – 16 – 16 – 135 – 14 – 511 – 1 – 59 – 1 – 1,710 – 183 1,893 846 452 3,071 15 333 37 – Other facilities, factory and office equipment 3,172 – 100 thereof right-of-use assets from leases Advance payments made and construction in progress 104 1,991 – 4 – 19 Property, plant and equipment 60,673 – 1,264 3,651 – 2 2,067 60,991 37,428 – 705 4,250 Leased products 49,942 – 1,930 17,820 Investments accounted for using the equity method 3,439 – 1,440 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including € 57 million recognised through the income statement. 2 Including assets under construction of € 1,297 million. 292 1,000 – 1,292 – 11 – 24 – – 35 72 84 – 156 – – – – – – 15,712 50,120 7,333 – 300 5,833 1,054 3,825 52 97 – 301 963 – 149 1,264 240 88 501 – 589 – – 3 10 – 7 – – – – – – – 2 2 – 5 2 – – 4 – – – 2 – – – – – – – – – – – – – – – – – – – – – – 57 – – 57 689 – 543 5,969 11,007 10,443 5 795 379 956 380 906 1,232 6,769 12,342 11,729 124 73 6,691 796 9,244 2,312 9,345 2,681 1,500 30,239 10,060 10,884 2 206 16 – 18 2,211 51 – 40 927 70 76 1,025 73 1,6192 1,991 1,830 39,141 21,850 23,245 4,741 8,125 41,995 42,609 – – 10 – 10 240 3,585 3,199 85 444 – 529 216 519 – 735 204 499 – 703 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 220 ANALYSIS OF CHANGES IN GROUP TANGIBLE, INTANGIBLE AND INVESTMENT ASSETS 2019 1. 1. 2019 Translation differences Additions Reclassi- fications Disposals 31. 12. 2019  1. 1. 2019 Translation differences Current year Reclas si- fications Value adjustments1 Disposals 31. 12. 2019  31. 12. 2019  31. 12. 2018 Acquisition and manufacturing cost Depreciation and amortisation Carrying amount in € million Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land thereof right-of-use assets from leases Plant and machinery thereof right-of-use assets from leases Other facilities, factory and office equipment thereof right-of-use assets from leases Advance payments made and construction in progress 14,990 385 1,798 17,173 14,023 2,387 38,190 1 3,061 71 2,392 – – 11 11 115 22 224 – 23 1 18 2,134 – 448 2,582 1,013 751 – – – – 1,733 15,391 5,014 – 182 385 5 2,075 1,183 1,915 17,851 6,202 397 – 8 99 45 15,449 5,310 3,107 – – – 4 4 44 1 1,667 – 148 1,815 794 430 – – – – 2 – 2,581 1,253 2,187 40,061 28,111 158 3,086 – 6 75 311 33 6 63 1 1,297 – 1,713 – 286 2 3 82 – 3,172 2,082 104 1,991 – – – 14 – – 6 322 31 – Property, plant and equipment 57,666 380 5,202 Leased products 45,851 619 20,513 Investments accounted for using the equity method 2,624 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including € 71 million recognised through the income statement. 2 Carrying amounts at 1. 1. 2019 (from the first-time application of IFRS 16). 3 Including assets under construction of € 1,555 million. 444 938 28 1,410 – 2 4 – 6 2,876 139 86 – 225 – – – – – – – 2,575 60,673 35,503 216 4,202 17,041 49,942 7,592 95 4,732 2,061 3,439 293 28 28 292 1,000 – 349 1,292 – 191 480 – 671 – – – 1 – – 1 – – – – – – – – – – – – – – – – – – 240 – 322 11 – 1,733 4,948 10,443 9,976 – 166 5 1,169 380 906 380 615 1,899 6,122 11,729 10,971 46 5 6,104 426 9,345 2,681 6,420 2,387 2 2,172 29,177 10,884 10,078 6 76 2,147 1,025 31 – 73 1,991 3 2,395 1 2 908 71 2 2,493 37,428 23,245 19,801 5,086 7,333 42,609 38,259 – 240 3,199 2,624 – 275 – – – 219 – 11 – 88 501 – 589 204 499 – 703 253 458 28 739 – 311 – 230 – 4 – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 221 21 INTANGIBLE ASSETS 22 PROPERTY, PLANT AND EQUIPMENT (INCLUDING 23 LEASED PRODUCTS RIGHT-OF-USE ASSETS ARISING FROM LEASES) Intangible assets mainly comprise capitalised development costs on vehicle, module and architecture projects as well as subsidies for tool costs, licences, purchased development projects, emission allowances, software and purchased customer lists. Other intangible assets include a brand-name right amounting to € 40 million (2019: € 43 million) which is allocated to the Automotive segment and is not subject to scheduled amortisation since its useful life is deemed to be indefinite. The asset is subject to a limited right of ownership. The € 3 million decrease in the carrying amount is entirely due to currency factors. Intangible as- sets also include goodwill of € 33 million (2019: € 33 mil- lion) allocated to the Automotive cash- generating unit (CGU) and goodwill of € 346 million (2019: € 347 million) allocated to the Financial Services CGU. As in the previous year, there was no requirement to recognise impairment losses or reversals of impairment losses on intangible assets in 2020. As in the previous year, no financing costs were recognised as a cost component of intangible assets in 2020. No impairment losses were recognised in 2020, as in the previous year. Minimum lease payments of non-cancellable ope- rating leases amounting to € 20,872 million (2019: € 20,894 million) fall due as follows: As in the previous year, no financing costs were recognised as a cost component of property, plant and equipment in 2020. Right-of-use assets arising from leases of land and buildings relate primarily to logistics and office prem- ises and, to a lesser extent, to selling and production premises. In order to secure these premises and, in the interests of flexibility, the property rental agreements concerned often contain extension and termination options. in € million 31. 12. 2020 31. 12. 2019 within one year between one and two years between two and three years between three and four years between four and five years later than five years 9,285 6,327 3,416 1,534 275 35 9,804 6,489 3,278 1,073 225 25 Minimum lease payments 20,872 20,894 Impairment losses amounting to € 312 million (2019: € 198 million) were recognised on leased products in 2020 as a consequence of changes in residual value expectations. Income from the reversal of impairment losses amounted to € 110 million (2019: € 74 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 222 24 INVESTMENTS ACCOUNTED FOR USING YOUR NOW THERE THE EQUITY METHOD Investments accounted for using the equity method comprise the joint venture BMW Brilliance Auto motive Ltd. (BMW Brilliance), Shenyang, the joint venture YOUR NOW Holding GmbH, Munich, the joint venture IONITY Holding GmbH & Co. KG (IONITY), Munich, and the interest in the associated company THERE Holding B. V. (THERE), Rijswijk. BMW Brilliance Automotive Ltd. BMW Brilliance produces BMW brand models mainly for the Chinese market and also has engine manufactur- ing facilities, which supply the joint venture’s two plants with petrol engines. The BMW Group intends to increase its stake in the BMW Brilliance joint venture from 50 % to 75 %. On 11 October 2018, the BMW Group signed an agreement with its joint venture partner, a wholly owned subsidiary of Brilliance China Automotive Holdings Ltd. (CBA), to acquire an additional 25 % shareholding in BMW Bril- liance. The two partners agreed on a purchase price of an equivalent of € 3.6 billion. The contractual term of the joint venture, which would currently expire in 2028, is to be extended to 2040 as part of the agreement. The prerequisite for the extension is the acquisition of the additional shares as agreed. The agreement was approved at the CBA shareholders’ meeting on 18 Jan- uary 2019 and remains subject to the approval of the relevant authorities. The transaction is scheduled to close in 2022. The closing will result in BMW Brilliance being fully consolidated in the BMW Group Financial Statements and is expected to result in the recognition of a significant valuation gain in the financial year in which the transaction closes. With effect from 31 January 2019, the BMW Group completed the merger of several mobility services companies under the name YOUR NOW. The at-equity loss reported for YOUR NOW Holding GmbH for 2020 amounted to € 349 million (2019: loss of € 662 million). This loss includes impairment losses amounting to € 113 million (2019: loss of € 277 million), recorded at the level of YOUR NOW Holding GmbH. The impairment losses arose in light of the fact that – with respect to its impact on the BMW Group’s investments accounted for using the equity method – the spread of the coronavirus gave rise to an indication of possible impairment, both at the level of the BMW Group and at the level of YOUR NOW Holding GmbH. The test only resulted in the need to recognise an impairment loss at the level of YOUR NOW Holding GmbH. In the previous year, impairment losses amounting to € 240 million were also recognised in the BMW Group Financial Statements on the carrying amount of individual YOUR NOW companies. These impairment losses were reported in the result on invest- ments within other financial result. IONITY Together with Daimler AG, Stuttgart (Daimler AG), the Ford Motor Company, the Volkswagen Group, Kia Motors Corporation and Hyundai Motor Corporation, the BMW Group operates the joint venture IONITY Holding GmbH & Co. KG, whereby each of the parties has an equal shareholding. The entry of Kia Motors Corporation and Hyundai Motor Corporation was com- pleted in October 2020. Since then, the BMW Group has held a 20 % stake in IONITY. IONITY’s business model envisages the construction and operation of high- performance charging stations for battery electric vehicles in Europe. Together with AUDI AG, Daimler AG and other com- panies, the BMW Group holds shares in THERE. HERE International B. V. (HERE) is an associated company of THERE. HERE’s digital maps are laying the foundations for the next generation of mobility and location-based services, providing the basis for new assistance systems and, ultimately, fully automated driving. In December 2019, it was announced that Mitsubishi Corporation (MC) and Nippon Telegraph and Telephone Corporation (NTT) would jointly acquire a 30 % stake in HERE. This acquisition was completed in May 2020 following the receipt of approval from the antitrust au- thorities. The sale of the shares gave rise to a positive im- pact of € 105 million which is reported within the result from equity accounted investments. In addition, share capital reductions were carried out at the level of THERE in June and September 2020, resulting in € 197 million being returned to the BMW Group. The spread of the coronavirus also gave rise to an in- dication of possible impairment from the BMW Group’s perspective. The impairment test was based on HERE’s current business plan, which already incorporates its lowered expectations in the wake of the coronavirus pandemic. The value in use was determined on the basis of a present value computation derived from the revised business plan. A pre-tax discount rate of 18.5 % was applied. Following the impairment test, an impairment loss of € 27 million was recognised in the BMW Group Financial Statements and included in the result on in- vestments within other financial result. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Financial information relating to equity accounted investments is summarised in the following tables (from a 100 % perspective): 223 in € million 2020 2019 2020 BMW Brilliance DISCLOSURES RELATING TO THE BALANCE SHEET Non-current assets Current assets thereof cash and cash equivalents Equity Non-current financial liabilities, provisions and liabilities Current financial liabilities, provisions and liabilities RECONCILIATION OF AGGREGATED FINANCIAL INFORMATION Assets Provisions and liabilities Net assets Group’s interest in net assets Eliminations Carrying amount 1 Prior year’s figures adjusted. 2 Including shareholder impairment. 7,292 9,859 5,137 7,388 1,546 8,217 17,151 9,763 7,388 3,694 – 1,084 2,610 7,248 7,381 2,937 5,293 1,358 7,978 14,629 9,336 5,293 2,646 – 960 1,686 1,190 24 24 1,214 – – 1,214 – 1,214 335 2 – 335 2 THERE 2019 1,131 467 1 1,597 – 1 1,598 1 1,597 475 – 475 YOUR NOW 2020 2019¹ 2020 IONITY 2019 ¹ 945 767 341 1,226 113 373 1,712 486 1,226 591 – 591 1,610 1,116 818 2,073 184 469 2,726 653 2,073 987 – 987 244 55 17 244 13 42 299 55 244 49 – 49 175 70 50 205 10 30 245 40 205 51 – 51 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 224 in € million 2020 2019 2020 BMW Brilliance DISCLOSURES RELATING TO THE INCOME STATEMENT Revenues Scheduled depreciation Profit / loss before financial result Interest income Interest expense Income taxes Profit / loss after tax thereof from continuing operations thereof from discontinued operations Other comprehensive income Total comprehensive income Group dividend income 2 1 Prior year’s figures adjusted. 2 Including dividends received in the amount of € 1,020 million (2019: € 643 million). 23,913 707 3,174 80 5 822 2,560 2,560 – 169 2,729 379 21,910 651 2,374 84 5 654 1,947 1,947 – – 14 1,933 1,284 – – – 1 4 – – 206 206 – 10 216 – THERE 2019 – – – 1 – – – – 383 – 383 – 1 – 382 – YOUR NOW 2020 2019 ¹ 2020 IONITY 2019 ¹ 234 127 – 693 – 3 6 – 749 – 701 – 48 – 81 – 830 – 424 150 – 1,349 – 23 – 28 – 1,805 – 1,805 – 17 – 1,788 – 8 19 – 43 – 1 – 8 – 37 – 37 – – – 37 – 1 10 – 29 – 1 – 5 – 24 – 24 – – – 24 – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 25 RECEIVABLES FROM SALES FINANCING Receivables from sales financing comprise the following: Impairment allowances on receivables from sales financing in accordance with IFRS 9, which only arise within the Financial Services segment, developed as follows: in € million 31. 12. 2020 31. 12. 2019 in € million General Simplified Stage 1 Stage 2 Stage 3 Credit financing for retail customers and dealerships * Finance lease receivables Receivables from sales financing * Figure contains Operating leases. Impairment allowances at 1 January 2020 63,584 20,693 84,277 71,104 21,333 92,437 Reclassification to Stage 1 Reclassification to Stage 2 Reclassification to Stage 3 Derecognition and origination of receivables Write-off of receivables Changes in risk parameters Other changes Impairment allowances at 31 December 2020 361 1 – 15 – 4 12 – 1 60 69 483 209 – 6 153 – 30 21 – 14 66 75 474 12 – – – 1 1 – 1 1 27 39 517 – 4 – 15 195 – 33 – 90 49 24 643 in € million General Simplified Stage 1 Stage 2 Stage 3 Impairment allowances at 1 January 2019 Reclassification to Stage 1 Reclassification to Stage 2 Reclassification to Stage 3 Derecognition and origination of receivables Write-off of receivables Changes in risk parameters Other changes Impairment allowances at 31 December 2019 363 2 – 17 – 6 17 – 2 – 40 44 361 175 – 13 107 – 24 – 26 – 17 31 – 24 209 12 – – – 1 1 – – – 12 482 – 1 – 16 175 – 15 – 133 1 24 517 225 Total 1,099 – 9 123 160 1 – 106 176 195 1,639 Total 1,032 – 12 74 144 – 23 – 152 – 8 44 1,099 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Impairment allowances include € 95 million (2019: € 74 million) on credit-impaired receivables relating to finance leases. The estimated fair value of vehicles held as collateral for credit-impaired receivables at the end of the reporting period totalled € 517 million (2019: € 541 million). The carrying amount of assets held as collateral and taken back as a result of payment default amounted to € 33 mil- lion (2019: € 39 million). 226 Finance leases are analysed as follows: 26 FINANCIAL ASSETS in € million 31. 12. 2020 31. 12. 2019* due within one year due between one and two years due between two and three years due between three and four years due between four and five years due later than five years 6,970 6,293 5,190 3,695 558 48 6,918 6,761 5,412 3,725 479 32 Gross investment in finance leases 22,754 23,327 due within one year due between one and two years due between two and three years due between three and four years due between four and five years due later than five years Net investment in finance leases without loss allowances 6,426 5,809 4,770 3,395 503 45 6,384 6,263 5,006 3,421 433 30 20,948 21,537 Unrealised interest income 1,806 1,790 Loss allowances 255 204 Net investment in finance leases 20,693 21,333 * Prior year’s figures adjusted. Financial assets comprise: in € million 31. 12. 2020 31. 12. 2019 Marketable securities and investment funds Derivative instruments Loans to third parties Other Financial assets thereof non-current thereof current 27 INCOME TAX ASSETS 4,226 3,256 71 199 5,391 1,620 54 260 7,752 7,325 2,644 5,108 1,370 5,955 Income tax assets totalling € 606 million (2019: € 1,209 million) include claims amounting to € 43 million (2019: € 186 million), which are expected to be settled after more than one year. Claims may be settled earlier than this depending on the timing of the underlying proceedings. The decrease in income tax assets was mainly attributable to tax reimbursements. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 227 28 OTHER ASSETS 29 INVENTORIES 30 TRADE RECEIVABLES Other assets comprise: Inventories comprise the following: Trade receivables comprise the following: in € million 31. 12. 2020 31. 12. 2019 in € million 31. 12. 2020 31. 12. 2019 in € million 31. 12. 2020 31. 12. 2019 3,041 4,807 Work in progress, unbilled contracts Finished goods and goods for resale 10,542 11,491 Gross carrying amount 2,345 2,590 Raw materials and supplies Vehicles held for sale in the financial services business Advance payments to suppliers 1,373 1,660 818 503 1,286 1,674 808 632 Allowances for impairment of stage 2 – simplified procedure Allowances for impairment of stage 3 – 24 – 23 – 26 – 46 Net carrying amount 2,298 2,518 Return right assets for future leased products Receivables from companies in which an investment is held Other taxes Expected reimbursement claims Receivables from subsidiaries Collateral assets Prepaid expenses Sundry other assets Other assets thereof non-current thereof current 2,048 1,581 1,046 546 454 364 1,246 10,326 1,216 9,110 2,641 1,935 1,086 308 413 396 1,353 12,939 1,325 11,614 Collateral assets comprise mainly customary collater- al (banking deposits) arising on the sale of asset-backed financing instruments. Inventories 14,896 15,891 Out of the total amount recognised for inventories at 31 December 2020, inventories measured at net realisa- ble value amounted to € 899 million (2019: € 973 million). Write-downs to net realisable value in the financial year 2020 amounted to € 59 million (2019: € 126 million), while reversals of write-downs amounted to € 2 million (2019: € 22 million). The expense recorded in conjunction with inventories during the financial year 2020 amounted to € 48,128 million (2019: € 53,524 million). The previous year’s figures were adjusted due to a change in the computational logic. The adjusted amount disclosed no longer relates only to prod- ucts sold, but also includes the impact of inter-segment eliminations. Excluding inter-segment eliminations, the prior-year figure amounted to € 62,633 million. At 31 December 2020, the carrying amounts of inventories expected to be realised after more than twelve months amount to € 359 million (2019: € 445 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 228 Impairment allowances on trade receivables in 31 EQUITY accordance with IFRS 9 developed as follows: in € million Balance at 1 January Allocated (+) Reversed (–) Utilised Exchange rate impact and other changes Balance at 31 December 2020 72 16 – 36 – 1 – 4 47 2019 Number of shares issued 54 30 – 7 – 7 2 72 Preferred stock Common stock 2020 2019 2020 2019 Shares issued / in circulation at 1 January 56,867,304 56,126,904 601,995,196 601,995,196 Shares issued in conjunction with Employee Share Programme Less: shares repurchased and re-issued 822,124 124 744,447 4,047 – – – – Shares issued / in circulation at 31 December 57,689,304 56,867,304 601,995,196 601,995,196 In the case of trade receivables, collateral is generally held in the form of vehicle documents and bank guar- antees so that the risk of bad debt loss is very limited. All Company stock is issued to bearer and each share has a par value of € 1.00. Preferred stock, to which no voting rights are attached, bear an additional dividend of € 0.02 per share. Expenses for impairment losses and income from the reversal of impairment losses is not significant and is therefore not reported separately in the income statement. In 2020, a total of 822.124 shares of preferred stock was sold to employees at a reduced price of € 36.55 per share in conjunction with an Employee Share Programme. These shares are entitled to receive dividends for the first time with effect from the finan- cial year 2021. Issued share capital increased by € 0.8 million as a result of the issue to employees of 822.000 new shares of non-voting preferred stock. BMW AG is authorised up to 15 May 2024 to issue 5 million shares of non-voting preferred stock amounting to nominal € 5.0 million. At the end of the reporting period, 3.4 million of these amounting to nominal € 3.4 million remained available for issue. In addition, 124 previously issued shares of preferred stock were acquired and re-issued to employees. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 229 Capital reserves Accumulated other equity The capital structure at the end of the reporting Capital reserves include premiums arising from the issue of shares and totalled € 2,199 million (2019: € 2,161 million). The change amounting to € 38 million related to the share capital increase in conjunction with the issue of shares of preferred stock to employees. Accumulated other equity comprises amounts recog- nised directly in equity resulting from the translation of the financial statements of foreign subsidiaries, changes in the fair value of derivative financial instruments and marketable securities, costs of hedging recognised direct- ly in equity as well the related deferred taxes. Revenue reserves Revenue reserves comprise the non-distributed earn- ings of companies consolidated in the Group Financial Statements. In addition, remeasurements of the net defined benefit obligation for pension plans are also presented in revenue reserves. Capital management disclosures The BMW Group’s objectives with regard to capital management are to safeguard over the long-term the Group’s ability to continue as a going concern and to provide an adequate return to shareholders. It is proposed that the unappropriated profit of BMW AG for the financial year 2020 amounting to € 1,253 million be utilised as follows: The capital structure is managed in order to meet needs arising from changes in economic conditions and the risks of the underlying assets. — Distribution of a dividend of € 1.92 per share of preferred stock (€ 109 million) — Distribution of a dividend of € 1.90 per share of common stock (€ 1,144 million) The BMW Group is not subject to any unified exter- nal minimum equity capital requirements. Within the Financial Services segment, however, there are a number of individual entities which are subject to equity capital requirements of relevant regulatory banking authorities. period was as follows: in € million 31. 12. 2020 31. 12. 2019 Equity attributable to shareholders of BMW AG Proportion of total capital Non-current financial liabilities Current financial liabilities Total financial liabilities Proportion of total capital Total capital 60,891 36.4 % 67,390 38,986 59,324 33.7 % 70,647 46,093 106,376 116,740 63.6 % 66.3 % 167,267 176,064 Equity attributable to shareholders of BMW AG increased during the financial year by 2.6 %, primarily reflecting the increase in revenue reserves. The proposed distribution was not recognised as a liability in the Group Financial Statements. In order to manage its capital structure, the BMW Group uses various instruments, including the amount of dividends paid to shareholders and share buybacks. Moreover, the BMW Group actively manages debt capital, carrying out funding activities with a target debt structure in mind. A key aspect in the selection of financial instruments is the objective to achieve matching maturities for the Group’s financing requirements. In order to reduce non-systematic risk, the BMW Group uses a variety of financial instruments available on the world’s capital markets to achieve diversification. BMW GroupReport 2020 230 Group Financial Statements Notes to the Group Financial Statements 32 PENSION PROVISIONS In the case of defined benefit plans, the BMW Group is required to pay the benefits it has granted to pres- ent and past employees. Defined benefit plans may be covered by provisions or pension assets. In Germany, pension obligations of the BMW Group are mostly cov- ered by assets transferred to BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA) (funded plan). Funded plans also exist in the UK, the USA, Switzerland, Belgium and Japan. In the meantime, most of the defined benefit plans have been closed to new entrants. The assumptions stated below, which depend on the economic situation in the relevant country, are used to measure the defined benefit obligation of each pension plan. In Germany, the so-called “pension entitlement trend” (Festbetragstrend) remained at 2.0 %. The follow- ing weighted average values have been used for Germany, the UK and other countries: Germany United Kingdom Other in % 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 Discount rate Pension level trend Weighted duration of all pension obligations in years 0.55 1.33 21.6 1.00 1.38 21.3 1.19 2.19 19.8 1.92 2.15 19.2 1.88 – 15.9 2.42 – 16.0 The following mortality tables are applied in coun- tries, in which the BMW Group has significant defined benefit plans: Germany United Kingdom Mortality Table 2018 G issued by Prof. K. Heubeck (with invalidity rates reduced by 70 %) S2PA tables and S3PA light tables BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Based on the measurement principles contained in IAS 19, the following balance sheet carrying amounts apply to the Group’s pension plans: 231 in € million 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 Germany United Kingdom Other Total Present value of defined benefit obligations Fair value of plan assets Effect of limiting net defined benefit asset to asset ceiling Carrying amounts at 31 December thereof pension provisions thereof assets 15,535 12,451 – 3,084 3,084 – 14,022 11,320 – 2,702 2,702 – 9,944 9,589 – 355 355 – 9,503 9,137 – 366 371 – 5 1,108 1,127 870 3 241 254 – 13 883 2 246 262 – 16 26,587 22,910 3 3,680 3,693 – 13 24,652 21,340 2 3,314 3,335 – 21 The most significant of the BMW Group’s pension plans are described below. by multiplying a fixed amount by the number of years of service. Germany Both employer- and employee-funded benefit plans exist in Germany. Benefits paid in conjunction with these plans comprise old-age retirement pensions as well as in- validity and surviving dependants’ benefits. The level of ongoing pension payments is adjusted in accordance with § 16 of the Company Pensions Act (Betriebsrentengesetz). The defined benefit plans have been closed to new entrants since 2014. Defined contribution plans with a minimum rate of return, comprising employer- and em- ployee-funded components, continue to exist. The fact that the plan involves a minimum rate of return means that the defined contribution entitlements are classified in accordance with IAS 19 as defined benefit plans. In the case of defined benefit plans involving the payment of a pension, the amount of benefits to be paid is determined The assets of the German pension plans are invested by BMW Trust e. V., Munich, in accordance with a CTA. The representative bodies of this entity are the Board of Directors and the Members’ General Meeting. BMW Trust e. V., Munich, currently has seven members and three members of the Board of Directors elected by the Members’ General Meeting. The Board of Directors is responsible for investments, drawing up and deciding on investment guidelines as well as monitoring compliance with those guidelines. The members of the association can be employees, employee representatives, senior executives and members of the Board of Management of BMW AG. An ordinary Members’ General Meeting takes place once every calendar year, and deals with a range of matters, in- cluding receiving and approving the association’s annual report, ratifying the activities of the Board of Directors and adopting changes to the association’s statutes. United Kingdom Defined benefit plans exist in the United Kingdom which are closed for all plan participants. Vested benefits remain in place. New benefits are covered by contribu- tions made to a defined contribution plan. The defined benefit pension plans are administered by BMW Pension Trustees Limited, Farnborough, and BMW (UK) Trustees Limited, Farnborough, both trustee companies which act independently of the BMW Group. BMW (UK) Trustees Limited, Farnborough, is represent- ed by ten trustees and BMW Pension Trustees Limited, Farnborough, by five trustees. A minimum of one third of the trustees must be elected by plan participants. The trustees represent the interests of plan participants and decide on investment strategies. Funding contributions to the funds are determined in agreement with the BMW Group. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The change in the net liability for defined benefit pension plans can be derived as follows: in € million 1 January 2020 EXPENSE / INCOME Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements REMEASUREMENTS Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in financial assumptions Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from experience adjustments Changes in the limitation of the net defined benefit asset to the asset ceiling Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2020 thereof pension provisions thereof assets 232 Net defined benefit liability 3,314 488 34 – 54 – – 1,880 2,726 – 239 – 144 1 – 524 – – 6 – 36 3,680 3,693 – 13 Effect of limitation of the net defined benefit asset to the asset ceiling 2 – – – – – – – – 1 – – – – 3 Defined benefit obligation Plan assets Total 24,652 – 21,340 3,312 488 337 – 54 – – 2,726 – 239 – 144 – – 84 – 645 – 618 – – 303 – – 488 34 – 54 – – 1,880 – 1,880 – – – – – 524 – 84 639 582 2,726 – 239 – 144 – – 524 – – 6 – 36 3,677 26,587 – 22,910 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements in € million 1 January 2019 EXPENSE / INCOME Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements REMEASUREMENTS Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in financial assumptions Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from experience adjustments Changes in the limitation of the net defined benefit asset to the asset ceiling Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2019 thereof pension provisions thereof assets Defined benefit obligation Plan assets Total 21,247 – 18,937 2,310 473 485 – 191 – 3 – 3,201 – 3 – 4 – – 78 – 1,104 473 24,652 – – 444 – – – 2,002 – – – – – 527 – 78 1,103 – 455 473 41 – 191 – 3 – 2,002 3,201 – 3 – 4 – – 527 – – 1 18 – 21,340 3,312 233 Effect of limitation of the net defined benefit asset to the asset ceiling Net defined benefit liability 3 – – – – – – – – – 1 – – – – 2 2,313 473 41 – 191 – 3 – 2,002 3,201 – 3 – 4 – 1 – 527 – – 1 18 3,314 3,335 – 21 In 2020, employment contract termination agree- ments were agreed with employees, resulting in the de- parture of the persons concerned and to vested pension benefits. Past service cost resulted mainly from differing assumptions used to calculate statutory pension entitle- ments on the one hand and for the ongoing accounting for active employees on the other. Past service cost in the previous year resulted mainly from the complete closure of two defined benefit plans in the USA. Depending on the cash flow profile and risk structure of the pension obligations involved, plan assets relating to defined benefit plans are invested in a diversified portfolio. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Plan assets in Germany, the UK and other countries comprised the following: in € million 2020 2019 2020 2019 2020 Germany United Kingdom COMPONENTS OF PLAN ASSETS Equity instruments Debt instruments thereof investment grade thereof mixed funds (funds without a rating) thereof non-investment grade Real estate funds Money market funds Absolute return funds Other Total with quoted market price Debt instruments thereof investment grade thereof mixed funds (funds without a rating) thereof non-investment grade Real estate Cash and cash equivalents Absolute return funds Other Total without quoted market price 31 December 2,166 7,326 5,041 – 2,285 – – – 128 9,620 779 324 455 – 428 159 645 820 2,031 6,513 4,275 – 2,238 – – – 109 8,653 911 316 595 – 394 20 632 710 2,831 2,667 12,451 11,320 234 Total 2019 2,705 13,754 10,752 – 3,002 19 103 – 124 Other 2019 91 592 585 – 7 19 29 – 15 2020 2,588 14,898 11,982 – 2,916 19 87 – 134 348 6,940 6,316 – 624 – 85 – – 584 6,648 5,891 – 757 – 74 – – 74 632 625 – 7 19 2 – 6 7,373 7,306 733 746 17,726 16,705 673 – 673 – 656 – 643 244 2,216 9,589 256 – 256 – 716 – 640 219 1,831 9,137 1 – – 1 – – 23 113 137 870 1 – – 1 – 1 31 104 137 883 1,453 324 1,128 1 1,084 159 1,311 1,177 5,184 1,168 316 851 1 1,110 21 1,303 1,033 4,635 22,910 21,340 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 235 In the financial year 2021, disbursements out of the plan assets are expected to exceed the employer’s contributions to plan assets by € 85 million. Plan assets of the BMW Group include own transferable financial instruments amounting to € 1 million (2019: € 8 million). The BMW Group is exposed to risks arising both from defined benefit plans and defined contribution plans with a minimum return guarantee. The discount rates used to calculate pension obligations are subject to market fluctu- ation and therefore influence the level of the obligations. Furthermore, changes in other actuarial parameters, such as expected rates of inflation, also have an impact on pen- sion obligations. In order to reduce currency exposures, a substantial portion of plan assets is either invested in the same currency as the underlying plan or hedged by means of currency derivatives. As part of the internal report- ing procedures and for internal management purposes, financial risks relating to the pension plans are reported using a value-at-risk approach by reference to the pension deficit. The investment strategy is also subject to regular review together with external consultants, with the aim of ensuring that investments are structured to match the timing of pension payments and the expected develop- ment of pension obligations. In this way, fluctuations in pension funding shortfalls are reduced. The defined benefit obligation relates to current em- ployees, pensioners and former employees with vested benefits as follows: in % 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 Germany United Kingdom Other Current employees Pensioners Former employees with vested benefits 66.2 27.4 6.4 67.6 27.4 5.0 – 42.2 57.8 – 45.5 54.5 62.9 29.9 7.2 64.3 29.0 6.8 Defined benefit obligation 100.0 100.0 100.0 100.0 100.0 100.0 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 236 The sensitivity analysis provided below shows the extent to which changes in individual factors – inde- pendently of each other – could influence the defined benefit obligation at the end of the reporting period. It is only possible to aggregate sensitivities to a limited extent. Since the change in obligation follows a non-linear pattern, estimates made on the basis of the specified sensitivities are only possible with this restric- tion. The calculation of sensitivities using ranges other than those specified could result in a disproportional change in the defined benefit obligation. Change in defined benefit obligation 31. 12. 2020 31. 12. 2019 in € million in % in € million in % increase of 0.75 % – 3,514 – 13.2 – 3,352 – 13.6 decrease of 0.75 % increase of 0.25 % decrease of 0.25 % increase of 1 year decrease of 1 year increase of 0.25 % decrease of 0.25 % 4,585 766 – 721 1,078 – 1,081 218 – 210 17.2 2.9 – 2.7 4.1 – 4.1 0.8 – 0.8 4,290 905 – 810 1,155 – 1,097 200 – 192 17.4 3.7 – 3.3 4.7 – 4.4 0.8 – 0.8 Discount rate Pension level trend Average life expectancy Pension entitlement trend In the UK, the sensitivity analysis for the pension level trend also takes account of restrictions due to caps and floors. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 33 OTHER PROVISIONS Other provisions changed during the year as follows: 237 in € million as of 1. 1. 2020* Translation differences Additions  Reversal of discounting Utilised Reversed 31. 12. 2020 thereof due within one year Statutory and non-statutory warranty obligations, product guarantees Obligations for personnel and social expenses Other obligations Other obligations for ongoing operational expenses Other provisions * Prior year’s figures adjusted. Depending on when claims occur, it is possible that the BMW Group may be called upon to fulfil the warranty or guarantee obligations over the whole period of the warranty or guarantee. Warranty provisions include amounts recognised in connection with the exhaust gas recirculation cooler. Expected reimbursement claims at 31 December 2020 amounted to € 1,046 million (2019: € 1,086 million) and are disclosed within other assets (see note 28). Provisions for obligations for personnel and social expenses comprise mainly obligations relating to per- formance-related remuneration components, workforce measures as well as pre-retirement part-time working arrangements and long-service awards. 5,550 2,496 3,271 1,892 13,209 – 277 – 19 – 43 – 94 – 433 3,178 1,405 1,361 1,288 7,232 158 19 9 – 186 – 2,354 – 1,288 – 508 – 1,399 – 5,549 – 124 – 31 – 337 – 171 – 663 6,131 2,582 3,753 1,516 13,982 1,731 1,483 2,794 1,486 7,494 The provisions for other obligations cover numerous identifiable specific risks and uncertain obligations, in particular for litigation and liability risks, including the provision recognised in the previous year for the ongoing EU Commission’s antitrust proceedings. Further infor- note 10. mation is provided in Other obligations for ongoing operational expenses include in particular expected payments for bonuses and other price deductions. 34 INCOME TAX LIABILITIES Current income tax liabilities totalling € 747 million (2019: € 963 million) include € 40 million (2019: € 89 mil- lion) which are expected to be settled after more than twelve months. Liabilities may be settled earlier than this depending on the timing of the underlying proceedings. BMW GroupReport 2020 Maturity within one year Maturity between one and five years Maturity later than five years Total Maturity within one year Maturity between one and five years Maturity later than five years 31. 12. 2020 12,642 6,863 12,735 4,578 492 593 550 533 32,001 11,956 3,709 3,159 1,181 517 – 248 12,022 – 22 1,300 838 38 – 399 56,665 18,819 16,466 9,037 2,511 1,148 550 1,180 14,077 7,952 11,216 7,903 544 1,149 2,615 637 35,801 11,597 3,414 2,204 1,363 886 – 271 12,287 – 27 1,329 988 61 – 419 238 31. 12. 2019 Total 62,165 19,549 14,657 11,436 2,895 2,096 2,615 1,327 38,986 52,771 14,619 106,376 46,093 55,536 15,111 116,740 Group Financial Statements Notes to the Group Financial Statements 35 FINANCIAL LIABILITIES Financial liabilities of the BMW Group comprise the following: in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Derivative instruments Commercial paper Other Financial liabilities Planned future cash outflows from variable lease payments, which are not taken into account in the measurement of lease liabilities, are expected to amount to € 57 million (2019: € 56 million). Similarly, potential future cash outflows amounting to € 1,252 million (2019: € 1,393 million) (undiscounted) have not been taken into account in the measurement of lease liabilities as it is not reasonably certain that the leases will be renewed (or not terminated). These cash outflows relate to periods of up to 74 years (2019: up to 59 years). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Liabilities related to financing activities can be rec- onciled as follows: in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Financial liabilities towards companies in which an investment is held Other (excluding interest payable) Liabilities relating to financing activities in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Financial liabilities towards companies in which an investment is held Other (excluding interest payable) Liabilities relating to financing activities 239 as of 1. 1. 2020 Cash inflows / outflows Changes due to the acquisition or disposal of companies Changes due to exchange rate factors Changes in fair values Other changes 31. 12. 2020 62,165 19,549 14,657 11,436 2,895 2,615 296 864 – 4,306 – 82 2,329 – 2,172 – 494 – 2,025 492 – 78 114,477 – 6,336 – – – – – – – – – – 1,972 – 648 – 520 – 248 – 63 – 40 – 48 – 34 766 – – 21 – – – – 12 – – – 173 – – – 56,665 18,819 16,466 9,037 2,511 550 740 752 – 3,573 787 185 105,540 as of 1. 1. 2019 Cash inflows / outflows Changes due to the acquisition or disposal of companies Changes due to exchange rate factors Changes in fair values Other changes 31. 12. 2019 53,346 17,335 14,359 13,196 105 2,480 529 626 101,976 7,342 1,869 202 – 1,754 – 440 134 – 233 202 7,322 – – – – – – – – – 618 345 96 – 43 6 1 – 36 859 – – 44 – – – – – – – – 7 3,224 – – – 62,165 19,549 14,657 11,436 2,895 2,615 296 864 1,059 903 3,217 114,477 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Bonds comprise: Issuer BMW Finance N. V. BMW US Capital, LLC BMW International Investment B.V. Other 240 Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average nominal interest rate (in %) EUR 3,350 million NOK 1,730 million SEK 1,500 million USD 500 million JPY 24,500 million EUR 23,800 million CNY 13,500 million HKD 2,352 million USD 2,050 million NOK 1,500 million GBP 850 million AUD 273 million USD 2,158 million USD 16,255 million EUR 2,500 million AUD 30 million SEK 500 million GBP 250 million GBP 1,800 million NOK 1,000 million CHF 600 million CNY 6,000 million CAD 1,600 million 2.1 3.0 4.0 3.0 5.3 6.5 2.3 5.8 5.3 3.8 6.0 10.0 3.5 6.4 7.6 5.0 3.0 2.2 4.1 10.0 6.8 3.0 3.2 0.0 1.9 0.5 1.0 0.5 0.8 3.6 2.6 2.5 1.9 1.3 3.2 0.7 3.2 0.9 3.0 0.7 0.1 1.3 3.3 0.5 4.8 2.4 Interest variable variable variable variable fixed fixed fixed fixed fixed fixed fixed fixed variable fixed fixed fixed variable variable fixed fixed fixed fixed fixed The following details apply to commercial paper: Issuer BMW Finance N.V. Issue volume in relevant currency (ISO-Code) EUR 550 million Weighted average maturity period (in days) Weighted average nominal interest rate (in %) 71 – 0.2 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 241 36 OTHER LIABILITIES 37 TRADE PAYABLES Other liabilities comprise the following items: As in the previous year, trade payables are due within in € million Contract liabilities Refund liabilities for future leased products Deferred income Bonuses and sales aides Other taxes Deposits received Payables to other companies in which an investment is held Payables to subsidiaries Other advance payments received for orders Social security Sundry Other liabilities * Prior year’s figures adjusted. 31. 12. 2020 31. 12. 2019* one year. 5,485 3,926 3,546 2,911 1,484 1,019 814 180 139 133 5,038 6,103 3,635 2,971 1,265 983 519 192 160 109 1,550 21,187 2,091 23,066 Contract liabilities relate to obligations for service and repair work as well as telematics services and roadside assistance agreed to be part of the sale of a vehicle (in some cases multi-component arrangements). An amount of € 2,604 million (2019: € 2,255 million) was released from contract liabilities in the financial year and recognised as revenues from contracts with customers. Deferred income includes down payments received on leases with customers as well as deferred grants. Grants comprise mainly public sector funds to promote regional structures and which have been invested in the production plants in Brazil, China, Germany, Mexico, Austria and South Africa amongst others. The grants are partly subject to holding periods for the assets con- cerned of up to five years and / or minimum employment figures or minimum production figures. Grant income is recognised in the income statement over the useful lives of the assets to which it relates. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements OTHER DISCLOSURES 38 CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS Contingent liabilities The following contingent liabilities existed at the balance sheet date: in € million 31. 12. 2020 31. 12. 2019 Investment subsidies Litigation Guarantees Other Contingent liabilities 77 105 43 1,067 1,292 284 139 46 618 1,087 Other contingent liabilities comprise mainly risks relating to taxes and customs duties. The BMW Group determines its best estimate of con- tingent liabilities on the basis of the information available at the date of preparation of the Group Financial State- ments. This assessment may change over time and is adjusted regularly on the basis of new information and circumstances. A part of the risks is covered by insurance. The European Commission is currently conducting an investigation in connection with antitrust allega- tions against five German car manufacturers. The BMW Group has provided for the potential outcome of 242 the investigation in the form of a provision measured on the basis of the Statement of Objections, at the best possible estimate (see also note 10 to the Group Financial Statements for the financial year 2019). In relation to these allegations, numerous class action lawsuits have been brought in the USA and Canada as well as several private lawsuits in South Korea. The class action law- suits in the USA were dismissed in the first instance in October 2020. The plaintiffs have appealed this decision. Class action lawsuits in Canada and private lawsuits in South Korea are still at an early stage. Further civil lawsuits based on the allegations are possible going forward. In addition, the Chinese State Administration for Market Regulation opened antitrust proceedings against BMW AG in March 2019, followed by the Korea Fair Trade Commission in May 2020 and the Turkish Competition Authority in July 2020. Possible risks for the BMW Group cannot be currently foreseen, either in terms of their outcome or the amounts involved. Further disclosures pursuant to IAS 37.86 cannot be provided at present. Regulatory authorities have ordered the BMW Group to recall various vehicle models in conjunction with air- bags supplied by the Takata group of companies. Provi- sion for the costs involved has been recognised within warranty provisions. In addition to the risks already cov- ered by warranty provisions, it cannot be ruled out that further BMW Group vehicles will be affected by future recall actions. Further disclosures pursuant to IAS 37.86 cannot be provided at present. In September 2019, the Japan Fair Trade Commission conducted a search of BMW Japan Corp. in connection with its market practices in relation to dealerships. In mid-December 2020, the authority signalled its principle willingness to end the investigation without sanctions and determination of a violation of the law, provided that an agreement with BMW Japan on future-oriented meas- ures can be reached. The discussions in that regard are still ongoing. Any remaining risks for the BMW Group can currently not be ruled out and foreseen in detail, either in terms of their outcome or the amounts involved. Further disclosures pursuant to IAS 37.86 cannot be provided at present. On January 22, 2020, the U. S. Securities and Exchange Commission (SEC) had opened an investigation into po- tential violations of U. S. securities laws by BMW Group relating to disclosures regarding BMW Group’s unit sales of new vehicles. This matter was settled on September 24, 2020 with the SEC, without admitting or denying the allegations, and BMW Group consented to the entry of an Order finding violations of the U. S. Securities Act and agreed to pay a penalty of $18 million. Certain BMW Group entities and their officers are defendants in private securities litigation following the SEC Order. Possible risks for the BMW Group cannot be quantified at present. Further disclosures pursuant to IAS 37.86 cannot be provided at present. Other financial commitments In addition to liabilities, provisions and contingent liabilities, the following commitments exist for the BMW Group at the end of the reporting period: in € million 31. 12. 2020 31. 12. 2019 Purchase commitments for property, plant and equipment Purchase commitments for intangible assets 3,264 3,128 2,787 2,146 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 39 FINANCIAL INSTRUMENTS The carrying amounts of financial instruments are assigned to IFRS 9 categories in the following table. in € million ASSETS Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Other Cash and cash equivalents Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral assets Remaining other assets Total 243 At amortised cost At fair value through other comprehensive income At fair value through profit or loss Not assigned to an IFRS 9 category At amortised cost At fair value through other comprehensive income At fair value through profit or loss Not assigned to an IFRS 9 category 31. 12. 2020 31. 12. 2019 – 63,104 – – – 115 49 199 12,622 2,298 546 2,048 454 1,504 – – – – – 3,245 – – – – – – – – 477 – – – 413 866 22 – 915 – – – – – 258 21,173 851 1,992 – – – – – – – – – 5,774 – 70,625 – – – 444 40 260 11,574 2,518 308 2,641 413 1,519 – – – – – 3,889 – – – – – – – – 461 – – – 50 1,058 14 – 462 – – – – – 242 21,812 326 1,244 – – – – – – – – – 8,058 82,939 3,245 2,693 30,048 90,342 3,889 2,045 31,682 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 244 in € million LIABILITIES Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset-backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Lease liabilities Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Remaining other liabilities * Total * Prior year’s figures adjusted. At amortised cost At fair value through other comprehensive income At fair value through profit or loss Not assigned to an IFRS 9 category At amortised cost At fair value through other comprehensive income At fair value through profit or loss Not assigned to an IFRS 9 category 31. 12. 2020 31. 12. 2019 56,665 9,037 16,466 550 18,819 – – – – 1,180 8,644 180 814 5,250 117,605 – – – – – – – – – – – – – – – – – – – – – – 788 – – – – – – – – – – – 112 248 – 2,511 – – – – 14,943 62,165 11,436 14,657 2,615 19,549 – – – – 1,327 10,182 192 519 4,917 788 17,814 127,559 – – – – – – – – – – – – – – – – – – – – – – 1,020 – – – – – – – – – – – 805 271 – 2,895 – – – – 17,438 1,020 21,409 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 245 Disclosures relating to financial instruments measured at amortised cost The following table shows the fair values and carry- ing amounts of financial assets and liabilities that are measured at amortised cost and whose carrying amounts differ from their fair value. The fair values are generally determined using the discounted cash flow method, taking into account the relevant risk of default. For the purposes of fair value measurement using the discounted cash flow method, expected future cash flows are discounted on the basis of up-to-date interest curves observable on the market. The fair values of receivables from sales financing are measured using the discounted cash flow method, taking into account customer-specific credit risk. In view of the fact that these allowances are calculated in part on the basis of internal information, receivables from sales financing are allocated to Level 3 in the level hierarchy in accordance with IFRS 13. The fair values of the financial assets shown in the table relate to financial institutions and are also measured using the discounted cash flow method, taking into account the risk of default. Given that these financial institutions all have excellent credit ratings, the risk of default is low and can be observed on the market. The fair values of these items are therefore allocated to Level 2. In the case of financial liabilities, own credit risk is also taken into account based on credit default swaps available on the market, so that the fair values of these items are also allocated to Level 2. For all other financial instruments not listed here that are measured at amortised cost, the carrying amount corresponds to the fair value. For this reason, they are not presented separately. in € million Fair value Carrying amount Fair value Carrying amount 31. 12. 2020 31. 12. 2019 Receivables from sales financing – credit financing Receivables from sales financing – finance and operating leases Financial assets – Marketable securities and investment funds Financial liabilities Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks 65,326 23,116 116 58,136 18,818 16,599 9,209 63,104 21,173 115 56,665 18,819 16,466 9,037 73,699 22,741 446 62,757 19,659 14,739 12,071 70,625 21,812 444 62,165 19,549 14,657 11,436 BMW GroupReport 2020 246 Group Financial Statements Notes to the Group Financial Statements Disclosures relating to financial instruments measured at fair value The carrying amounts of financial instruments measured at fair value are allocated to the measurement levels pursuant to IFRS 13 as described below. in € million Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 31. 12. 2020 31. 12. 2019 Level hierarchy in accordance with IFRS 13 Level hierarchy in accordance with IFRS 13 Marketable securities, investment funds and collateral assets Other investments Cash equivalents Loans to third parties Derivative instruments (assets) Interest rate risks Currency risks Raw material market price risks Other risks Derivative instruments (liabilities) Interest rate risks Currency risks Raw material market price risks 3,608 80 915 – – – – – – – – 503 – – – 2,344 335 573 – 919 171 52 – 397 – 22 – – 1 3 – – 6 4,582 106 – – – – – – – – – 365 – 462 – 1,274 74 267 – 1,155 723 218 – 355 – 14 – – – 5 – – – In the financial year 2020, the availability of market or stock exchange prices was re-assessed as at 31 December. As a result, an amount of € 275 million relating to mar- ketable securities, investment funds and collateral assets was reclassified from Level 1 to Level 2, in view of the fact that the fair values of the marketable securities concerned are derived on the basis of comparable instruments in the form of a theoretical price. Furthermore, money market funds amounting to € 915 million were reclassified from Level 2 to Level 1 as at 31 December 2020, due to the fact that corresponding market or stock exchange prices are available. As a general rule, any transfers between fair-value hi- erarchy levels are made at the end of the relevant interim or year-end reporting period. In the previous financial year, marketable securi- ties amounting to € 187 million were transferred as at 30 June 2019 from Level 1 to Level 2, reflecting the fact that their fair value was determined on the basis of ob- servable market data. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Financial instruments measured at fair value using input factors not based on observable market prices are allocated to Level 3. The fair values of these financial instruments are shown in the following table: in € million 31. 12. 2020 Fair value 31. 12. 2019 Fair value Unquoted equity instruments Convertible bonds Options on unquoted equity instruments Derivative instruments 397 22 3 – 5 355 14 5 – 247 Financial instruments allocated to Level 3 relate mainly to investments in a private-equity fund. The valuation of unquoted equity instruments is determined primarily using the market-based approach. In particular, the financing rounds that take place within the private equity sector – usually on a regular basis at intervals of approximately 12 to 24 months – represent a significant input factor for these purposes. In addition, the invest- ment advisor provides the external fund manager with relevant, investment-specific information on an ongoing basis (at least quarterly). The latter subsequently assesses the underlying individual companies in accordance with the guidelines for International Private Equity and Ven- ture Capital Valuations (IPEV). As part of the process of analysing valuations, the external fund manager reviews the investment-specific milestones, including an analysis of financial, technical and liquidity-specific performance indicators. Based on this analysis, it is considered whether the price of the most recent financing round is acceptable as a reasonable market valuation, in particular for early-stage or growth- phase investments. Key performance indicators used for the purpose of milestone analysis are highly dependent on the business model underlying the investment; typical technical key performance indicators relate to licenses and patents held, the stage of technology development such as evidence of feasibility and prototypes, market en- tries, customer and user growth and appointments to key management positions. Key financial performance indi- cators used are revenues, EBITDA and the correspon ding growth rate and / or development of specific contribution margins. Key liquidity-specific performance indicators are cash on hand, cash burn rates and prospects for future financing rounds. Since the pricing of equity investments derived from financing rounds is considered to be the key input factor for the valuation, adjustments in valuation give rise to a similar change in the equity instrument that is required to be recorded with income statement effect. In addition, the valuation of selected equity instru- ments is based on the income approach. This involves discounting cash flows on the basis of current business cases using the weighted average cost of capital to determine the fair value of the financial instrument. Changes in fair values determined in connection with adjustments to significant input factors are not material for the BMW Group. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The convertible bonds that have been classified to Level 3 are primarily used as instruments in advance of future financing rounds relating to private equity invest- ments. Valuations are therefore performed in accordance with the International Private Equity and Venture Capital Valuation (IPEV) guidelines. Mandatory conversions are usually structured in such a way that the number of shares to be received depends on the future share price. Due to the generally short ma- turities, the instruments are subject to only insignificant fluctuations in value. Irrespective of this fact, impairment tests are performed at regular intervals. The exercise price for share options in such compa- nies is generally low, verging towards zero. Consequently, financing rounds have a direct impact on the market value of the options. In this respect, they are valued in a similar way to unquoted equity instruments, as described above. For selected derivatives, a complete set of data rele- vant for valuation purposes is not available due to their limited market maturity. In order to model forward curves, data is collated and updated on the basis of regular bank and trader inquiries. The valuation methodology applied is in line with the general valuation principles for deriv- atives used within the treasury management system of the BMW Group. Changes in fair values resulting from shifts in forward curves within a range of + / – 10 % are not material for the BMW Group. 248 The balance sheet carrying amount of Level 3 finan- cial instruments developed as follows: in € million 1 January 2020 Additions Disposals Gains (+) / losses (–) recognised in accumulated other equity Gains (+) / losses (–) recognised in the income statement Currency translation differences 31 December 2020 in € million 1 January 2019 Additions Disposals Gains (+) / losses (–) recognised in accumulated other equity Gains (+) / losses (–) recognised in the income statement Currency translation differences 31 December 2019 Unquoted equity instruments Convertible bonds Options on unquoted equity instruments Derivative instruments Financial Instruments Level 3 355 73 – 87 – 85 – 29 397 14 17 – 7 – – – 2 22 5 – – 2 – – – 3 – – 2 – 7 – – – 5 374 90 – 94 – 7 85 – 31 417 Unquoted equity instruments Convertible bonds Options on unquoted equity instruments Derivative instruments Financial Instruments Level 3 265 90 – 38 – 33 5 355 3 14 – 3 – – – 14 4 – – – 1 – 5 – – – – – – – 272 104 – 41 – 34 5 374 Gains and losses recognised in the income statement are reported within the line item “Other financial result”. Gains and losses recognised in the income statement in the 2020 financial year included an unrealised net positive amount of € 84 million (2019: € 32 million). BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Offsetting of financial instruments Derivative financial instruments of the BMW Group are subject to legally enforceable master netting agree- ments or similar contracts. However, receivables and payables relating to derivative financial instruments are not netted due to non-fulfilment of the stipulated criteria. Offsetting would have the following impact on the carrying amounts of derivatives: in € million Balance sheet amounts as reported Gross amount of derivatives which can be offset in case of insolvency Net amount after offsetting Non-derivative financial assets and liabilities are only offset if a legally enforceable right currently exists and it is actually intended to offset the relevant amounts. No financial assets and liabilities have been netted in the BMW Group due to the fact that the necessary require- ments for netting have not been met. Gains and losses on financial instruments The following table shows the net gains and losses arising on financial instruments in accordance with IFRS 9: in € million Financial instruments measured at fair value through other comprehensive income Financial instruments measured at fair value through profit or loss Financial assets measured at amortised cost Financial liabilities measured at amortised cost 249 Net gains and losses arising on financial instruments measured at fair value through other comprehensive income mainly relate to changes in the fair value of marketable securities. Further details are provided in the disclosures relating to the statement of comprehen- note 19). Total interest income arising on sive income ( financial assets measured at fair value through other comprehensive income amounted to € 37 million (2019: € 49 million) and total interest expense to € 30 million (2019: € 41 million). 31. 12. 2020 31. 12. 2019 Reported on assets side Reported on equity and liabilities side Reported on assets side Reported on equity and liabilities side 3,256 – 790 2,466 1,148 – 790 358 1,620 – 833 787 2,096 – 833 1,263 Net gains and losses arising on financial instruments measured at fair value through profit and loss mainly include results from the fair value measurement of stand- alone derivatives, marketable securities and shares in investment funds, as well as other financial assets. Net gains and losses arising on financial assets meas- ured at amortised cost comprise mainly exchange rate gains / losses and impairment losses / reversals. Net gains and losses arising on financial liabilities measured at am- ortised cost comprise mainly exchange rate gains / losses as well as fair value gains / losses on hedged items in designated hedging relationships that are recognised in the income statement. Total interest income arising on financial assets measured at amortised cost relates mainly to the interest income earned on credit financing and reported within revenues. Total interest expense arising on financial liabilities measured at amortised cost amounted to € 1.8 billion (2019: € 1.9 billion). 2020 7 310 – 1,050 – 350 2019 42 – 1,012 160 296 BMW GroupReport 2020 250 The credit risk on trade receivables is assessed mainly on the basis of information relating to overdue amounts. The gross carrying amounts of these receivables are allo- cated in accordance with IFRS 9 to overdue ranges used for management purposes as follows: in € million Not overdue 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue More than 90 days overdue Total 31. 12. 2020 31. 12. 2019 2,002 229 31 23 60 1,947 369 89 40 145 2,345 2,590 Group Financial Statements Notes to the Group Financial Statements Credit risk The BMW Group is exposed to counterparty credit risks if contractual partners, for example a retail cus- tomer or a dealership, are unable or only partially able to meet their contractual obligations. Information on the management of credit risk for receivables from finan- cial services is provided in the Combined Management Report on Outlook, Risks and Opportunities). Report (see section Notwithstanding the existence of collateral accept- ed, the carrying amount of financial assets (with the exception of derivative financial instruments) generally represents the maximum credit risk. In addition, the credit risk is increased by additional unutilised loan com- mitments in the dealership financing line of business. Total dealership financing credit risk at the end of the reporting period therefore amounted to € 30,682 million (2019: € 31,943 million). In the case of all relationships underlying non- derivative financial instruments, in order to minimise the credit risk and depending on the nature and amount of exposure, collateral is required, credit information and references obtained or historical data based on the existing business relationship, in particular payment behaviour, reviewed. In the case of trade receivables, customers are regu- larly assessed with regard to their credit risk. Depend- ing on contractual status, necessary measures, such as dunning procedures, are initiated in good time. The credit risk relating to cash deposits and deriva- tive financial instruments is minimised by the fact that the Group only enters into such contracts with parties of first-class credit standing. Within the financial services business, items fi- nanced for retail customers and dealerships (such as vehicles, facilities and property) serve as first-ranking collateral with a recoverable value. Security is also put up by customers in the form of collateral asset pledges, asset assignment and first-ranking mortgages, supple- mented where appropriate by warranties and guarantees. Items previously held as collateral that are subsequently acquired relate mainly to vehicles. As a rule, these as- sets can be converted into cash at short notice through the dealership organisation. Creditworthiness testing is an important aspect of the BMW Group’s credit risk management. Every borrower’s creditworthiness is test- ed for all credit financing and lease contracts entered into by the BMW Group. In the case of retail customer financing, creditworthiness is assessed using validated scoring systems integrated in the acquisition process. In the area of dealership financing, creditworthiness is assessed by means of ongoing credit monitoring and an internal rating system that takes account not only of the material credit standing of the borrower, but also of qualitative factors, such as past reliability in business relations. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Receivables from sales financing are allocated to internally defined rating categories based on credit risk. The classification into creditworthiness levels is based on default probabilities. The related gross carrying amounts in accordance with IFRS 9 are allocated as follows: 251 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 31. 12. 2020 31. 12. 2019 in € million General Simplified Total Expected credit loss General Simplified Total Expected credit loss Gross carrying amount of financial assets with good credit ratings Gross carrying amount of financial assets with medium credit ratings Gross carrying amount of financial assets with poor credit ratings Total 76,356 3,778 118 1,633 1,653 937 80,252 4,223 367 38 17 422 – – 1,019 78,356 5,469 2,091 406 431 802 85,399 4,102 38 696 1,167 704 1,019 85,916 1,639 89,539 2,567 378 22 16 416 – – 1,014 86,473 5,291 1,772 272 199 628 1,014 93,536 1,099 Further disclosures relating to credit risk – in par- ticular with regard to the amounts of impairment losses recognised – are provided in the explanatory notes to the relevant categories of receivables in note 25 and 30. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Liquidity risk The following table shows the maturity structure of expected contractual cash flows (undiscounted) for financial liabilities: in € million NON-DERIVATIVE FINANCIAL LIABILITIES Bonds Asset-backed financing transactions Liabilities to banks Liabilities from customer deposits (banking) Trade payables Lease liabilities Commercial paper Other financial liabilities DERIVATIVE FINANCIAL LIABILITIES With gross settlement Cash outflows Cash inflows With net settlement Cash outflows Maturity within one year Maturity between one and five years Maturity later than five years Total Maturity within one year Maturity between one and five years Maturity later than five years 31. 12. 2020 13,456 7,067 5,295 12,808 8,644 512 550 120 432 14,910 – 14,478 380 380 33,224 12,369 3,317 3,781 – 1,227 – 288 248 5,544 – 5,296 144 144 11,930 – 1,388 22 – 1,028 – 357 14 631 – 617 28 28 58,610 19,436 10,000 16,611 8,644 2,767 550 765 694 21,085 – 20,391 552 552 14,977 8,255 8,751 11,277 10,182 562 2,618 188 1,524 33,826 – 32,302 374 374 37,477 12,090 2,317 3,505 – 1,523 – 435 758 18,485 – 17,727 338 338 12,595 – 1,378 27 – 1,302 – 384 – 26 598 – 624 23 23 252 31. 12. 2019 Total 65,049 20,345 12,446 14,809 10,182 3,387 2,618 1,007 2,256 52,909 – 50,653 735 735 Total financial liabilities 49,264 54,598 14,767 118,629 58,708 58,443 15,683 132,834 The cash flows relating to non-derivative liabilities comprise principal repayments and the related interest. The amounts disclosed for derivative instruments com- prise only cash flows relating to derivatives that have a negative fair value at the balance sheet date. In the case of derivatives with a negative fair value, an overall positive cash flow can arise due to the various yield curves used. At 31 December 2020 credit commitments available at short notice to dealerships which had not been called upon at the end of the reporting period amounted to € 14,367 million (2019: € 10,776 million). Solvency is assured at all times by managing and monitoring the liquidity situation on the basis of a rolling cash flow forecast. The resulting funding requirements are covered by a variety of instruments placed on the world’s financial markets, with the aim to minimise risk by matching maturities with financing requirements and in alignment with a dynamic target debt structure. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 253 showing the impact of potential exchange rate fluctua- tions on operating cash flows on the basis of probability distributions. Volatilities and correlations serve as the main input factors to determine the relevant probability distributions. The potential negative impact on earnings is calcu- lated at the reporting date for each currency for the following financial year on the basis of current market prices and exposures with a confidence level of 95 %. The risk mitigating effect of correlations between the various currencies is taken into account when the risks are aggregated. The following table shows the potential negative im- pact for the BMW Group for the following year resulting from unfavourable changes in exchange rates, measured on the basis of the cash-flow-at-risk approach. in € million 31. 12. 2020 31. 12. 2019 Cash flow at risk 531 487 As a further reduction of risk, a syndicated credit line totalling € 8 billion (2019: € 8 billion) from a consortium of international banks is available to the BMW Group. Intra-group cash flow fluctuations are balanced out by the use of daily cash pooling arrangements. Further information is provided in the Combined Management Report. Market risks As part of the implementation of the risk manage- ment strategy, the extent to which risk exposures should be hedged is decided at regular intervals. The economic relationship between the hedged item and the hedging instrument is based essentially on the fact that they are denominated in the same currency and have the same maturities. Items are hedged on the basis of a constant ratio of one to one between hedging instrument and risk exposure. The principal market risks to which the BMW Group is exposed are currency risk, interest rate risk and raw materials market price risk. Causes of hedge ineffectiveness are seen potentially only for counterparty credit risk. However, in view of the processes that have been established for credit risk management, ineffectiveness is not expected to arise. Protection against such risks is provided in the first instance though natural hedging which arises when the values of non-derivative financial instruments have matching maturities and amounts (netting). Derivative financial instruments are used to reduce the risk remain- ing after netting. Currency, interest rate and raw materials market price risks of the BMW Group are managed at a corpo- rate level. The BMW Group measures currency risk using a cash-flow-at-risk model. The analysis of currency risk is based on forecast foreign currency transactions which could result in exposures to surpluses of foreign currency cash inflows and cash outflows. At the end of the report- ing period, the overall currency exposure – in each case for the following year and determined by aggregating the individual currency exposures based on their absolute amount – was as follows: Further information is provided in the “Report on outlook, risks and opportunities” section of the Combined Management Report. in € million 31. 12. 2020 31. 12. 2019 Currency exposure 33,975 33,950 Currency risk As an enterprise with worldwide operations, the BMW Group conducts business in a variety of curren- cies, from which currency risks arise. In order to hedge currency risks, the BMW Group holds, as at 31 Decem- ber 2020, derivative financial instruments mostly in the form of forward currency contracts and currency swaps. Currency exposures include short positions amount- ing to € 5,222 million (2019: € 2,789 million). This exposure is compared to all hedges that are in place. The net cash flow surplus represents an uncovered risk position. The cash-flow-at-risk approach involves BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 254 Interest rate risk Interest rate risks arise when funds are borrowed and invested with differing fixed-rate periods or differ- ing terms. At the BMW Group, all items subject to, or bearing, interest are exposed to interest rate risk and can therefore affect both the assets and liabilities side of the balance sheet. The fair value of the Group’s interest rate portfolios was as follows at the end of the reporting period: in € million 31. 12. 2020 31. 12. 2019 Fair values of interest rate portfolios 58,545 55,697 Interest rate risk is managed through the use of interest rate derivatives. As part of the implementa- tion of the risk management strategy, interest rate risks are monitored and managed at regular intervals. The interest rate contracts used for hedging purposes comprise mainly swaps, which, if hedge accounting is applied, are accounted for as fair value hedges. The economic relationship between the hedged item and the hedging instrument is based on the fact that the main parameters of the hedged item and the related hedging instrument, for example start date, term and currency, are the same. Items are hedged on the basis of a con- stant ratio of one to one between hedging instrument and risk exposure. In view of the fact that own credit risk is excluded from the hedging relationship, ineffectiveness is expected to be low. For selected fixed-interest assets, part of the interest rate risk is hedged on a portfolio basis. In this case, swaps are used as the hedging instrument. Hedge relationships are terminated and redesignated on a monthly basis at the end of each reporting period, thereby taking account of the constantly changing content of each portfolio. In view of the plans to reform and replace certain benchmark interest rates, the timing and exact nature of these changes is currently subject to uncertainty. Across the BMW Group, a considerable number of con- tracts are directly affected by the benchmark interest rates reform. Hedging relationships entered into by the BMW Group are mainly based on USD LIBOR and GBP LIBOR benchmark interest rates, which are designated as hedged risks in fair value hedging relationships. The hedging relationships affected are subject to uncertain- ty with respect to the identifiability of the designated benchmark interest rates. The transition to the newly created or revised bench- mark rates is being managed and monitored as part of a multidisciplinary project. The conversion project will involve making changes to systems, processes, risk and valuation models, as well as dealing with the associated accounting implications. The uncertainty arising from the benchmark interest rate reform is likely to continue to exist up to the end of 2021. The BMW Group applies a value-at-risk approach throughout the Group for internal reporting purposes and to manage interest rate risk. This approach is based on a historical simulation in which the potential future fair value losses of the interest rate portfolios are com- pared across the Group with expected amounts on the basis of a holding period of 250 days and a confidence level of 99.98 %. The risk mitigating effect of correlations between the various portfolios is taken into account when the risks are aggregated. In the following table, the potential volumes of fair value fluctuations – measured on the basis of the val- ue-at-risk approach – are compared with the expected value for the interest-rate-sensitive exposures of the BMW Group: in € million Value at risk 31. 12. 2020 31. 12. 2019 1,160 1,094 Raw materials price risk The BMW Group is exposed to market price risks on raw materials. In order to hedge these risks, the Group mainly uses forward commodity contracts. As part of the implementation of the risk management strategy, the extent to which risk exposures should be hedged is decided at regular intervals and the corresponding hedging ratio defined. Items are hedged on the basis of a constant ratio of one to one between hedging instrument and risk exposure. Causes of hedge ineffectiveness are seen potentially only for counterparty credit risk. However, in view of the processes that have been established for credit risk management, ineffectiveness is not expected to arise. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The economic relationship between the hedged item and the hedging instrument is based essentially on the fact that they have the same basis and term. The BMW Group designates only the commodity price index-linked raw material surcharge as a hedged item. Other price components contained in the contract are not designated as being part of the hedge relationship as no effective hedging instruments exist for these components. The starting point for analysing raw materials price risk is to identify planned purchases of raw materials or components containing raw materials, the so-called “exposure”. At each reporting date, the exposure for the following financial year amounted to: 255 The potential negative impact on earnings is calculat- ed at the reporting date for each raw materials category for the following financial year on the basis of current market prices and exposure with a confidence level of 95 %. The risk mitigating effect of correlations between the various categories of raw materials is taken into account when the risks are aggregated. Disclosures on hedging measures The following disclosures on hedging measures in- clude derivatives of fully consolidated companies that are designated as a hedging instrument. The amounts shown in the table are stated before deferred taxes and take account of additional effects arising from the application of the modified closing rate method. The following table shows the potential negative impact for the BMW Group resulting from fluctuations in prices across all categories of raw materials, measured on the basis of the cash-flow-at-risk approach. The risk at each reporting date for the following financial year was as follows: The nominal amounts of hedging instruments were as follows: in € million Currency risks Interest rate risks 31. 12. 2020 Maturity within one year Maturity between one and five years Maturity later than five years 11,939 8,082 1,449 4,530 28,213 1,792 – 12,373 – in € million 31. 12. 2020 31. 12. 2019 in € million 31. 12. 2020 31. 12. 2019 Raw material price exposures 4,204 4,382 Cash flow at risk 310 419 Raw material price risks This exposure is compared to all hedges that are in place. The net cash flow surplus represents an uncovered risk position. The cash-flow-at-risk approach involves showing the impact of potential raw materials market price fluctuations on operating cash flows on the basis of probability distributions. Volatilities and correlations serve as input factors to assess the relevant probability distributions. Nominal amounts of hedging instruments 21,470 34,535 12,373 in € million Maturity within one year Maturity between one and five years Maturity later than five years 31. 12. 2019 Currency risks Interest rate risks Raw material price risks Nominal amounts of hedging instruments 14,823 6,672 1,651 9,020 29,691 1,920 – 12,938 – 23,146 40,631 12,938 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 256 The following table shows the most significant aver- age hedging rates of hedging transactions used by the BMW Group: Currency risks 31. 12. 2020 31. 12. 2019 Average hedging rates EUR / CNY EUR / USD EUR / GBP EUR / KRW EUR / JPY 8.05 – 0.87 8.26 1.16 0.87 1,334.86 1,328.59 124.20 124.92 Information on average interest hedge rates is not provided, since interest rate derivatives designated as hedging instruments are used exclusively to hedge items in fair value hedges. The hedge rates therefore corre- spond in each case to current market interest rate levels. Most of the hedges used in this context relate to variable yield curves relating to the euro, US dollar and British pound currency areas. The following table provides information on the nom- inal amounts, carrying amounts and fair value changes of contracts designated as hedging instruments: A cash-flow-at-risk approach to risk management involves making use of portfolio effects. No USD-denomi- nated hedging transactions were in hedging relationships at the balance sheet date. in € million Cash Flow Hedges 31. 12. 2020 31. 12. 2019 Carrying Amounts Carrying Amounts Nominal amounts Assets Liabilities Change in fair value of designated components Nominal amounts Assets Liabilities Change in fair value of designated components Raw material price risks Aluminium (EUR / t) Copper (EUR / t) Nickel (EUR / t) Palladium (EUR / oz) Platinum (EUR / oz) Average hedging rates Currency risks 31. 12. 2020 31. 12. 2019 Raw material price risks 16,469 3,241 277 574 54 58 1,169 23,843 466 3,571 60 266 590 215 – 479 250 Fair Value Hedges Interest rate risks 1,573 4,568 1,833 5,173 11,188 12,307 1,350 701 1,022 916 59,774 1,992 248 723 59,999 1,244 271 758 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The following table shows key information on hedged items for each risk category as well as the balances of designated components within accumulated other equity: in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks The accumulated amount of hedge-related fair value adjustments is € 10 million (2019: € 8 million) for assets and € 1,680 million (2019: € 1,012 million) for liabilities. Hedge relationships give rise to the following effects: in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks 257 Carrying Amounts Balances in accumulated other equity Carrying Amounts Balances in accumulated other equity Assets Liabilities Change in value of hedged items Continuing hedge relationships Terminated hedge relationships Assets Liabilities Change in value of hedged items Continuing hedge relationships Terminated hedge relationships 31. 12. 2020 31. 12. 2019 – – – – – 1,169 – 467 8,483 58,714 – 720 532 510 – – – – – – – – 479 – 250 8,631 58,723 – 759 – 23 1 – – – – Change of designated components in other comprehensive income Change in costs of hedging in other comprehensive income Hedge ineffectiveness recognised in income statement Change of designated components in other comprehensive income Change in costs of hedging in other comprehensive income Hedge ineffectiveness recognised in income statement 2020 2019 554 509 – 198 – 5 2 – – 3 – 961 264 – 117 – 7 9 – – – 1 BMW GroupReport 2020 258 Group Financial Statements Notes to the Group Financial Statements Designated components and costs of hedging within accumulated other equity changed as follows: in € million Designated component Costs of hedging Costs of hedging Designated component Costs of hedging Currency risks Interest rate risk Raw material price risk Opening balance at 1 January 2020 Change in fair value during the reporting period Reclassification to profit or loss for continuing hedge relationships for terminated hedge relationships Reclassification to acquisition costs for inventories Closing balance at 31 December 2020 – 22 1,170 – 512 – 104 – 532 – 497 – 443 557 84 – – 299 – 4 5 – 3 – – – 2 1 466 – – 29 72 510 5 1 – – – 6 – in € million Designated component Costs of hedging Costs of hedging Designated component Costs of hedging Currency risks Interest rate risk Raw material price risk Opening balance at 1 January 2019 Change in fair value during the reporting period Reclassification to profit or loss for continuing hedge relationships for terminated hedge relationships Reclassification to acquisition costs for inventories Closing balance at 31 December 2019 940 – 480 – 491 9 – – 22 – 614 – 622 716 23 – – 497 – 13 13 – 4 – – – 4 – 262 250 – 5 8 1 12 – 1 – – – 6 5 The nominal amount of hedging instruments directly affected by the reform of benchmark interest rates is € 14,469 million (of which USD LIBOR € 11,581 million and GBP LIBOR € 2,500 million). BMW GroupReport 2020 259 Stefan Quandt, Germany, is a shareholder and Deputy Chairman of the Supervisory Board of BMW AG. He is also the sole shareholder and Chairman of the Supervisory Boards of DELTON Health AG, Bad Homburg v. d. H., and DELTON Technology SE, Bad Homburg v. d. H., as well as the sole shareholder of DELTON Logistics S.à r. l., Grevenmacher, which via its subsidiaries, performed logistic-related services for the BMW Group during the financial year 2020. In addition, the DELTON companies held by Stefan Quandt acquired vehicles from the BMW Group by way of leasing. Stefan Quandt, Germany, is also the indirect majority shareholder of SOLARWATT GmbH, Dresden. Cooper- ation arrangements are in place between BMW Group and SOLARWATT GmbH, Dresden, within the field of electric mobility. The focus of this cooperation is on the provision of complete photovoltaic solutions for roof- top systems and carports to BMW i customers. In 2020 SOLARWATT GmbH, Dresden, acquired vehicles from the BMW Group by way of leasing. Susanne Klatten, Germany, is a shareholder and member of the Supervisory Board of BMW AG and also a shareholder and Deputy Chairwoman of the Super visory Board of ALTANA AG, Wesel. In 2020, ALTANA AG, Wesel, acquired vehicles from the BMW Group, mainly by way of leasing. Susanne Klatten, Germany, is also the sole share- holder and Chairwoman of the Supervisory Board of UnternehmerTUM GmbH, Garching. In 2020, the BMW Group bought in services from Unternehmer- TUM GmbH, Garching, mainly in the form of consul- tancy and workshop services. In addition, Susanne Klatten, Germany, and Stefan Quandt, Germany, are indirectly sole shareholders of Entrust Corp., Shakopee, Minnesota. Stefan Quandt is also a member of the supervisory board of this entity. In 2020, Entrust Corp., Shakopee, Minnesota, acquired vehicles from the BMW Group by way of leasing. Group Financial Statements Notes to the Group Financial Statements 40 RELATED PARTY RELATIONSHIPS The following individuals and entities are related parties in accordance with IAS 24: — Stefan Quandt and Susanne Klatten, as well as companies controlled by them, — The Board of Management and the Supervisory Board of the BMW Group, — Associated companies, joint ventures, non-consoli- dated subsidiaries, BMW Trust e. V. and BMW Foun- dation Herbert Quandt Transactions of the Group companies with related parties were carried out, without exception, in the nor- mal course of business of each of the parties concerned and conducted at market conditions, i. e. conditions that are also granted to other third-party manufacturers. During the year under report, members of the Board of Management and the Supervisory Board concluded vehicle purchase contracts and related service contracts as well as vehicle rental, vehicle leasing and vehicle fi- nancing contracts with BMW Group entities on market conditions. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Seen from the perspective of BMW Group entities, the volume of transactions with the above-mentioned entities was as follows: 260 Supplies and services performed Supplies and services received Receivables at 31 December Payables at 31 December in € thousand 2020 2019 DELTON Health AG (formerly DELTON AG) DELTON Logistics S. à r. l. DELTON Technology SE SOLARWATT GmbH ALTANA AG UnternehmerTUM GmbH EnviroChemie GmbH Entrust Corp. 1,950 1,235 6 2,363 2,425 37 11 134 2,065 1,473 6 453 2,529 104 28 154 2020 – 2019 – 19,068 21,596 – – 273 1,310 – – – – 462 2,651 107 – 2020 2019 1 5 – 287 243 – – 9 20 14 – 8 355 27 – 10 2020 – 1,574 – – 80 510 – – 2019 – 1,871 – – 65 693 – – A significant proportion of the BMW Group’s trans- actions with related parties relates to the joint venture BMW Brilliance Automotive Ltd. in € million BMW Brilliance Automotive Ltd. Supplies and services performed Supplies and services received Receivables at 31 December Payables at 31 December 2020 2019 9,701 9,227 2020 155 2019 107 2020 2019 2,045 2,639 2020 804 2019 496 For the most part, this involves the sale of vehicle components to BMW Brilliance Automotive Ltd. for further processing. BMW Group entities also perform services on behalf of BMW Brilliance Automotive Ltd. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements In total, the following amounts of goods and services were supplied to or received from other joint ventures and associated companies: 261 in € million Other joint ventures and associated companies 2020 32 2019 28 2020 64 2019 78 2020 8 2019 1 2020 9 2019 9 Supplies and services performed Supplies and services received Receivables at 31 December Payables at 31 December Business relationships with non-consolidated com- 41 SHARE-BASED REMUNERATION panies are small in scale. BMW Trust e. V., Munich, administers assets on a trustee basis to secure obligations relating to pensions in Germany and is therefore a related party of the BMW Group in accordance with IAS 24. This entity has no assets of its own. It had no income or expenses during the period under report. BMW AG bears expenses on an immaterial scale and performs services for BMW Trust e. V., Munich. The BMW Foundation Herbert Quandt, Munich, is an independent corporate foundation and due to the BMW Group’s significant influence, qualifies as a related party according to IAS 24. BMW Group made donations to the BMW Foundation Herbert Quandt during the financial year 2020 totaling € 6.3 million (2019: € 6.4 mil- lion). No other significant transactions took place. For disclosures relating to key management person- nel, please see note 43 and the Remuneration Report. The BMW Group provides three share-based pro- grammes: one for eligible employees, one for senior heads of department and one for members of the Board of Management. Employee Share Programme In connection with the Employee Share Programme, non-voting shares of preferred stock in BMW AG were granted in 2020 to qualifying employees at favourable conditions (see note 31 for the number and price of is- sued shares). Participants in the programme were entitled in 2020 to acquire packages of 8, 18 or 28 shares of pre- ferred stock (2019: 10, 17 or 25) with a discount in each case of € 11.50 (2019: € 13.00) per share compared to the market price (average closing price in Xetra trading in the period from 3 November to 6 November 2020: € 48.05). The programme was open to employees who have been in an employment relationship with BMW AG or by a wholly-owned BMW AG subsidiary in Germany, provided that the management of the subsidiary concerned has decided to participate in the programme. At the date of the announcement of the programme, there was a requirement for the employment relationship to have existed without interruption for at least one year and for it to continue until the transfer of the shares of preferred stock. Shares of preferred stock acquired in conjunction with the Employee Share Programme are subject to a vesting period of four years, starting from 1 January of the year in which the shares were acquired. In the financial year under report, 822,124 (2019: 744,447) shares of preferred stock were acquired by employees. This figure includes 822,000 (2019: 740,400) shares out of Authorised Capital 2019, with the remainder bought back via the stock exchange. Every year the Board of Management of BMW AG decides whether the scheme is to be continued. In the financial year 2020, the BMW Group recorded a personnel expense of € 9 million (2019: € 10 million) for the Employee Share Programme, corresponding to the difference between the market price and the reduced price of the shares of preferred stock purchased by em- ployees. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 262 Programme for senior heads of department and members of the Board of Management The share-based remuneration programme for quali- fying department heads, introduced with effect for finan- cial years beginning after 1 January 2012, is closely based on the programme for Board of Management members and is aimed at rewarding a long-term, entrepreneurial approach to running the business on a sustainable basis. Under the terms of the programme, participants give a commitment to invest an amount equivalent to 20 % of their performance-based bonus in BMW common stock and to hold the shares so acquired for a minimum of four years. With effect from 1 July 2019, the share-based compensation programme was revised and the invest- ment requirement increased to 26 % of the earnings-re- lated bonus. In return for the investment requirement, BMW AG pays 100 % of the investment amount as a net subsidy. Once the four-year holding period requirement has been fulfilled, the participants receive – for each three common stock shares held and at the Company’s option – one additional share of common stock or the cash equivalent, to be decided at BMW AG’s discretion. For financial years beginning after 1 January 2011, BMW AG has added a share-based remuneration com- ponent to the existing compensation system for Board of Management members. Members of the Board of Management receive a cash compensation (investment component) for the specific purpose of investment – after tax and contribu- tions – in shares of common stock of BMW AG. For the financial years 2018 to 2020, the investment component corresponds to 45 % of the gross bonus. The investment component is paid after the end of the Annual General Meeting, at which the separate financial statements of BMW AG for the relevant financial year are presented. The shares of common stock are purchased immediate- ly after the investment component has been paid out. Shares of common stock purchased in this way by Board members are required to be held for a period of four years. Under the compensation system valid up to the financial year 2020, Board members receive from BMW AG, for every three shares of common stock held, either one additional share of common stock or the cash equivalent, to be decided at BMW AG’s discretion. In the event of death or invalidity, special rules apply for early payment of share-based remuneration components based on the target amounts. Insofar the service contract is prematurely terminated and the Company has an ex- traordinary right of termination, or if the Board member resigns without the Company’s agreement, entitlements to amounts as yet unpaid relating to share-based remu- neration are forfeited. The members of the Board of Management in office at the end of the reporting period hold 44,037 shares of BMW common stock based on holding requirements arising from share-based remuneration for the financial years 2016 to 2019 (2019: 36,921). The share-based remuneration component is meas- ured at its fair value at each balance sheet date between grant and settlement date, and on the settlement date. The amounts are recognised as personnel expense on a straight-line basis over the vesting period and reported in the balance sheet as a provision. The cash-settlement obligation for the share-based remuneration component is measured at its fair value at the balance sheet date (based on the closing price of BMW AG common stock in Xetra trading at 31 Decem- ber 2020). The total carrying amount of the provision for the share-based remuneration component of current and for- mer Board of Management members and senior heads of department at 31 December 2020 was € 6,383,766 (2019: € 5,851,703). The total expense recognised in 2020 for the share- based remuneration component of current and former Board of Management members and senior heads of department was € 1,820,265 (2019: € 1,979,477). The fair value of the programmes for Board of Man- agement members and senior heads of department at the date of grant of the share-based remuneration com- ponents was € 987,759 (2019: € 1,374,798), based on a total of 13,444 shares (2019: 19,983 shares) of BMW AG common stock or a corresponding cash-based settlement measured at the relevant market share price prevailing on the grant date. Further details on the remuneration of the Manage- ment Board are provided in the Remuneration Report, which is part of the Combined Management Report. 42 DECLARATION WITH RESPECT TO THE CORPORATE GOVERNANCE CODE The Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft have issued the prescribed Declaration of Compliance pursu- ant to § 161 of the German Stock Corporation Act. It is included in the Corporate Governance Statement, which is on the BMW Group website at www.bmwgroup.com/ezu. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 263 43 COMPENSATION OF MEMBERS OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD The total compensation of the current members of the Board of Management and the Supervisory Board of BMW AG expensed for the financial year 2020 in accordance with IFRS comprised the following: in € million 2020 2019 Compensation to members of the Board of Management Fixed remuneration Variable remuneration thereof Performance Cash Plan Share-based remuneration component Allocation to pension provisions Benefits in conjunction with the termination of board activity Compensation to members of the Supervisory Board Fixed compensation and attendance fees Variable compensation Total expense thereof due within one year 18.8 7.3 10.9 1.3 0.6 2.6 0.6 5.6 5.6 – 27.6 23.1 30.0 8.1 20.9 8.3 1.0 2.9 7.1 5.6 2.0 3.6 45.6 28.6 Since the financial year 2018 and up to and including the financial year 2020, variable cash compensation has been supplemented by a multi-year and future-orient- ed Performance Cash Plan (PCP). The PCP evaluation period comprises three years, the grant year and the two subsequent years. The PCP is paid out after the end of the three-year assessment period. The total remunera- tion of former members of the Board of Management and their dependants amounted to € 13.1 million (2019: € 16.0 million). Pension obligations to current members of the Board of Management are covered by provisions amounting to € 14.7 million (2019: € 14.6 million), determined in accordance with IAS 19. Pension obligations to former members of the Board of Management and their surviving dependants, also determined in accordance with IAS 19, amounted to € 118.8 million (2019: € 113.1 million). The compensation arrangements applicable for members of the Supervisory Board for the financial year 2020 do not include any stock options, value appreciation rights comparable to stock options or any other stock- based compensation components. Apart from an advance amount paid out of the Performance Cash Plan 2019 – 2021 to individual members of the Board of Management, no loans or advances were granted to members of the Board of Management and the Supervisory Board by BMW AG or its subsidiaries in the financial year 2020, nor were any contingent liabilities entered into in their favour. During the year under report, members of the Board of Management and the Supervisory Board con- cluded vehicle purchase contracts and related service contracts as well as vehicle rental, vehicle leasing and vehicle financing contracts with BMW Group entities on market conditions. Further details about the remuneration of current members of the Board of Management and the Super- visory Board can be found in the Remuneration Report, which is part of the Combined Management Report. 44 EVENTS AFTER THE END OF THE REPORTING PERIOD The coronavirus pandemic will continue to influence the course of business for the BMW Group in 2021. The situation remains volatile and could have an impact on the results of operations, financial position and net assets of BMW AG and the BMW Group. The further course of the pandemic and implications for the BMW Group’s business performance is being continually monitored. Current estimates and assumptions for the finan- cial year 2021, to the extent already known to the BMW Group, have been taken into account and described in the Report on Outlook. Apart from these assessments, no further significant negative effects are known or can be estimated at the present time. However, further neg- ative effects could arise in the course of the year. No other events have occurred since the end of the financial year which could have a major impact on the results of operations, financial position and net assets of BMW AG and the BMW Group. BMW GroupReport 2020 264 Holding and Group financing companies are report- ed in the Other Entities segment. This segment also includes the operating companies BMW (UK) Invest- ments Ltd. and Bavaria Lloyd Reisebüro GmbH, which are not allocated to one of the other segments. Group Financial Statements Notes to the Group Financial Statements SEGMENT INFORMATION 45 EXPLANATORY NOTES TO SEGMENT INFORMATION Information on reportable segments For the purposes of presenting segment information, the activities of the BMW Group are divided into oper- ating segments in accordance with IFRS 8. The segmen- tation follows the internal management and reporting system and takes account of the organisational structure of the BMW Group based on the various products and services of the reportable segments. Within the Automotive segment, the BMW Group develops, manufactures, assembles and sells automobiles and off-road vehicles, under the brands BMW, MINI and Rolls-Royce as well as spare parts, accessories and mobility services. BMW and MINI brand products are sold in Germany through branches of BMW AG and by independent, authorised dealerships. Sales outside Germany are handled mainly by subsidiary companies and by independent import companies in some markets. Rolls-Royce brand vehicles are sold in selected markets via subsidiary companies and elsewhere by independent, authorised dealers. Activities relating to the development, manufacture, assembly and sale of motorcycles as well as spare parts and accessories are reported in the Motorcycles segment. The activities of the BMW Group are broken down into the operating segments Automotive, Motorcycles, Financial Services and Other Entities. Automobile leasing, fleet business, multi-brand busi- ness, retail and dealership financing, customer deposit business and insurance activities are the main activities allocated to the Financial Services segment. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 265 The success of the Other Entities segment is assessed on the basis of profit or loss before tax. The correspond- ing measure of segment assets used to manage the Other Entities segment is total assets less asset-side income tax items and intragroup investments. Internal management and reporting Segment information is prepared as a general rule in conformity with the accounting policies adopted for pre- paring and presenting the Group Financial Statements. Exceptions to this general principle include the treat- ment of inter-segment warranties, the earnings impact of which is allocated to the Automotive and Financial Services segments on the basis used internally to manage the business. In addition, intragroup repurchase agree- ments between the Automotive and Financial Services segments pursuant to IFRS 15, impairment allowances on intragroup receivables and changes in the value of consolidated other investments pursuant to IFRS 9 are also excluded. Intragroup leasing arrangements are not reflected in the internal management and reporting system on an IFRS 16 basis and therefore, in accord- ance with IFRS 8, do not give rise to any changes in the presentation of segment information. Inter-segment re- ceivables and payables, provisions, income, expenses and profits are eliminated upon consolidation. Inter-segment revenues are based on market prices. Centralised func- tions are included in the segments concerned. Expenses for centralised administrative functions allocated to the Financial Services segment are not settled in cash. The role of “chief operating decision maker” with re- spect to resource allocation and performance assessment of the reportable segment is embodied in the full Board of Management. For this purpose, different measures of segment performance as well as segment assets are taken into account in the operating segments. The Automotive and Motorcycles segments are man- aged on the basis of return on capital employed (RoCE). The relevant measure of segment results used is therefore profit before financial result. Capital employed is the cor- responding measure of segment assets used to determine how to allocate resources and comprises all current and non-current operational assets after deduction of liabil- ities used operationally which are generally not subject to interest (e. g. trade payables). The success of the Financial Services segment is measured on the basis of return on equity (RoE). Profit before tax therefore represents the relevant measure of segment earnings. The measure of segment assets in the Financial Services segment corresponds to net assets, defined as total assets less total liabilities. BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Segment information by operating segment is as follows: 266 in € million 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group SEGMENT INFORMATION BY OPERATING SEGMENT External revenues Inter-segment revenues Total revenues Segment result Result from equity accounted investments Capital expenditure on non-current assets Depreciation and amortisation on non-current assets 68,106 12,747 73,624 18,058 2,293 2,374 28,590 28,210 – 9 – 6 1,454 1,388 80,853 91,682 2,284 2,368 30,044 29,598 1 2 3 2 3 5 – – 98,990 104,210 – 14,194 – 19,443 – – – 14,194 – 19,443 98,990 104,210 2,162 920 6,041 5,978 4,499 136 7,607 5,853 103 – 146 119 194 – 149 110 1,725 2,272 – 235 – 96 1,467 – 24,146 12,054 – 27,544 11,142 – – – – – – 249 – – – 6,291 – 7,003 – 6,175 – 6,356 Reconciliation to Group figures 5,222 920 24,042 11,976 7,118 136 28,297 10,749 Group in € million Segment assets Investments accounted for using the equity method 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 31. 12. 2020 31. 12. 2019 15,779 16,193 3,585 3,199 681 – 712 – 15,555 15,545 98,226 106,038 86,417 89,546 216,658 228,034 – – – – – – 3,585 3,199 Automotive Motorcycles Financial Services Other Entities BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Write-downs on inventories to their net realisable value amounting to € 59 million (2019: € 126 million) were recognised by the Automotive segment in the fi- nancial year 2020. The reversal of impairment losses had a positive impact of € 2 million (2019: € 22 million) on the segment result of the Automotive segment. 267 The total of the segment figures can be reconciled to in € million the corresponding Group figures as follows: 31. 12. 2020 31. 12. 2019 Reconciliation of segment assets in € million 2020 2019 Total for reportable segments 130,241 138,488 Reconciliation of segment result Total for reportable segments 3,755 6,869 The result of the Financial Services segment was neg- atively impacted by impairment losses totalling € 362 mil- lion (2019: € 254 million) recognised on leased products. Income from the reversal of impairment losses on leased products amounted to € 126 million (2019: € 95 million). Financial result of Automotive segment Financial result of Motorcycles segment Elimination of inter-segment items Group profit before tax from continuing operations 560 – 3 910 – 32 – 7 288 5,222 7,118 The Other Entities’ segment result includes interest and similar income amounting to € 1,169 million (2019: € 1,515 million) and interest and similar expenses amounting to € 1,232 million (2019: € 1,419 million). The information disclosed for capital expenditure and depreciation and amortisation relates to non-cur- rent property, plant and equipment, intangible assets and leased products. Reconciliation of capital expenditure on non-current assets Total for reportable segments Elimination of inter-segment items Total Group capital expenditure on non-current assets Reconciliation of depreciation and amortisation on non-current assets Total for reportable segments Elimination of inter-segment items Total Group depreciation and amortisation on non-current assets 30,333 – 6,291 35,300 – 7,003 24,042 28,297 18,151 – 6,175 17,105 – 6,356 11,976 10,749 Non-operating assets – Automotive 59,677 58,612 Liabilities of Automotive segment not subject to interest Non-operating assets – Motorcycles Liabilities of Motorcycles segment not subject to interest Total liabilities – Financial Services segment Non-operating assets – Other Entities segment 35,769 38,257 39 782 47 688 132,062 140,955 7,007 6,859 Elimination of inter-segment items – 148,919 – 155,872 Total Group assets 216,658 228,034 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 268 The reconciliation of segment figures to the corre- sponding total Group figures shows the elimination of inter-segment items. Revenues with other segments result mainly from the sale of vehicles, for which the Financial Services segment has concluded a financing or lease contract. Eliminations of inter-segment items in the reconciliation to the Group profit before tax, capital expenditure and depreciation and amortisation mainly result from the sale of vehicles in the Automotive seg- ment, which are subsequently accounted for as leased products in the Financial Services segment. In the recon- ciliation of segment assets to Group assets, eliminations relate mainly to intragroup financing balances. In the information by region, external sales are based on the location of the customer. The information dis- closed for non-current assets relates to property, plant and equipment, intangible assets and leased products. Eliminations disclosed for non-current assets relate to leased products. Information by region in € million Germany China USA Rest of Europe Rest of Asia Rest of the Americas Other regions Eliminations Group External revenues Non-current assets 2020 2019 2020 2019 13,638 21,315 17,837 30,258 10,433 3,379 2,130 – 13,428 20,564 19,720 32,805 11,344 3,904 2,445 – 98,990 104,210 40,254 170 19,487 17,630 1,599 3,192 619 – 6,764 76,187 39,237 199 22,470 17,373 1,756 3,834 453 – 7,739 77,583 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 269 LIST OF INVESTMENTS AT 31 DECEMBER 2020 AFFILIATED COMPANIES (SUBSIDIARIES) OF BMW AG AT 31 DECEMBER 2020 46 LIST OF INVESTMENTS AT 31 DECEMBER 2020 The List of investments of BMW AG pursuant to § 285 and § 313 HGB is presented below. Disclosures for equity and earnings and for investments are not made if they are of “minor significance” for the results of operations, financial position and net assets of BMW AG pursuant to § 286 (3) sentence 1 no. 1 HGB and § 313 (3) sen- tence 4 HGB. It is also shown in the list which subsidiar- ies apply the exemptions available in § 264 (3) and § 264 b HGB with regard to the publication of annual financial statements and the drawing up of a management report and / or notes to the financial statements (footnotes 5 and 6). The Group Financial Statements of BMW AG serve as exempting consolidated financial statements for these companies. Companies DOMESTIC 1 BMW Beteiligungs GmbH & Co. KG, Munich 6 BMW INTEC Beteiligungs GmbH, Munich 3, 6 BMW Bank GmbH, Munich 3 BMW Finanz Verwaltungs GmbH, Munich BMW Verwaltungs GmbH, Munich 3, 6 Parkhaus Oberwiesenfeld GmbH, Munich BMW High Power Charging Beteiligungs GmbH, Munich 4, 6 Alphabet Fuhrparkmanagement GmbH, Munich 4 Alphabet International GmbH, Munich 4, 5, 6 BMW Hams Hall Motoren GmbH, Munich 4, 5, 6 BMW Vertriebszentren Verwaltungs GmbH, Munich BMW Fahrzeugtechnik GmbH, Eisenach 3, 5, 6 BMW Anlagen Verwaltungs GmbH, Munich 3, 6 Bavaria Wirtschaftsagentur GmbH, Munich 3, 5, 6 Rolls-Royce Motor Cars GmbH, Munich 4, 5, 6 BAVARIA-LLOYD Reisebüro GmbH, Munich BMW M GmbH Gesellschaft für individuelle Automobile, Munich 3, 5, 6 BMW Vermögensverwaltungs GmbH, Munich Bürohaus Petuelring GmbH, Munich LARGUS Grundstücks-Verwaltungsgesellschaft mbH, Munich FOREIGN 2 Europe 10 BMW Holding B. V., The Hague BMW International Holding B. V., The Hague BMW Österreich Holding GmbH, Steyr BMW International Investment B. V., The Hague Equity in € million Profit / loss in € million Capital invest- ment in % 6,897 3,558 2,075 210 153 – – – – – – – – – – – – – – – 797 – – – – – – – – – – – – – – – – – – – 21,742 9,477 3,041 1,706 2,634 1,165 761 – 1 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements BMW España Finance S. L., Madrid BMW Financial Services (GB) Ltd., Farnborough BMW (UK) Holdings Ltd., Farnborough BMW (Schweiz) AG, Dielsdorf BMW Motoren GmbH, Steyr BMW Finance S. N. C., Guyancourt BMW (UK) Manufacturing Ltd., Farnborough BMW i Ventures SCS SICAV-RAIF, Senningerberg ALPHABET (GB) Ltd., Farnborough BMW Finance N. V., The Hague BMW (UK) Ltd., Farnborough BMW France S. A., Montigny-le-Bretonneux Rolls-Royce Motor Cars Ltd., Farnborough BMW Iberica S. A., Madrid BMW Austria Leasing GmbH, Salzburg BMW Russland Trading OOO, Moscow BMW Italia S. p. A., San Donato Milanese BMW Austria Bank GmbH, Salzburg Alphabet Nederland B. V., Breda BMW Finanzdienstleistungen (Schweiz) AG, Dielsdorf BMW Financial Services Scandinavia AB, Sollentuna BMW Vertriebs GmbH, Salzburg Alphabet Belgium Long Term Rental NV, Aartselaar BMW Bank OOO, Moscow Bavaria Reinsurance Malta Ltd., Floriana BMW Malta Ltd., Floriana BMW Financial Services Belgium S. A. / N. V., Bornem BMW Belgium Luxembourg S. A. / N. V., Bornem BMW Northern Europe AB, Stockholm BMW Financial Services B. V., The Hague BMW Norge AS, Fornebu Alphabet Italia Fleet Management S. p. A., Rome 270 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1,190 1,157 1,111 1,050 927 530 496 340 272 225 223 216 202 195 193 189 156 148 122 100 – – – – – – – – – – – – 65 242 417 20 143 35 51 54 63 16 46 2 54 1 17 134 – 5 11 13 13 – – – – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Alphabet España Fleet Management S. A. U., Madrid Swindon Pressings Ltd., Farnborough BMW Financial Services Polska Sp. z o. o., Warsaw BMW Austria GmbH, Salzburg BMW Services Ltd., Farnborough Alphabet France Fleet Management S. N. C., Saint-Quentin-en-Yvelines Alphabet Austria Fuhrparkmanagement GmbH, Salzburg Alphabet Fuhrparkmanagement (Schweiz) AG, Dielsdorf BMW Portugal Lda., Porto Salvo BMW Financial Services (Ireland) DAC, Dublin BMW Financial Services Denmark A / S, Copenhagen BMW Hellas Trade of Cars A. E., Kifissia BMW Nederland B. V., The Hague Oy BMW Suomi AB, Helsinki BMW Distribution S. A. S., Vélizy-Villacoublay Park Lane Ltd., Farnborough BMW Renting (Portugal) Lda., Porto Salvo BMW Hungary Kft., Vecsés 9 BMW Romania S. R. L., Bucharest BMW Italia Retail S. r. l., Rome BMW Automotive (Ireland) Ltd., Dublin BMW Danmark A / S, Copenhagen BMW Czech Republic s. r. o., Prague BMW Madrid S. L., Madrid BMW Slovenská republika s. r. o., Bratislava BMW Slovenia distribucija motornih vozil d. o. o., Ljubljana BMW Bulgaria EOOD, Sofia Alphabet Polska Fleet Management Sp. z o. o., Warsaw BMW (UK) Investments Ltd., Farnborough BiV Carry I SCS, Senningerberg BMW (UK) Capital plc, Farnborough Alphabet Luxembourg S. A., Leudelange 271 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Riley Motors Ltd., Farnborough Triumph Motor Company Ltd., Farnborough BMW Central Pension Trustees Ltd., Farnborough BLMC Ltd., Farnborough Bavarian Sky S. A., Compartment German Auto Loans 7, Luxembourg 11 Bavarian Sky S. A., Compartment German Auto Loans 8, Luxembourg 11 Bavarian Sky S. A., Compartment German Auto Loans 9, Luxembourg 11 Bavarian Sky S. A., Compartment German Auto Loans 10, Luxembourg 11 Bavarian Sky S. A., Compartment German Auto Leases 5, Luxembourg 11 Bavarian Sky S. A., Compartment A, Luxembourg 11 Bavarian Sky S. A., Compartment B , Luxembourg 11 Bavarian Sky Europe S. A. Compartment A, Luxembourg 11 Bavarian Sky UK 2 plc, London 11 Bavarian Sky UK 3 plc, London 11 Bavarian Sky UK A Ltd., London 11 Bavarian Sky UK B Ltd., London 11 Bavarian Sky UK C Ltd., London 11 Bavarian Sky UK D Ltd., London 11 The Americas BMW (US) Holding Corp., Wilmington, Delaware BMW Manufacturing Co. LLC, Wilmington, Delaware BMW Bank of North America Inc., Salt Lake City, Utah BMW Financial Services NA LLC, Wilmington, Delaware BMW of North America LLC, Wilmington, Delaware BMW Canada Inc., Richmond Hill, Ontario Financial Services Vehicle Trust, Wilmington, Delaware BMW do Brasil Ltda., Araquari BMW SLP, S. A. de C. V., Villa de Reyes BMW US Capital LLC, Wilmington, Delaware BMW Financeira S. A. Credito, Financiamento e Investimento, São Paulo BMW de Mexico S. A. de C. V., Mexico City 272 100 100 100 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – – – – – – – – 2,873 2,150 1,304 1,127 769 550 293 125 109 – – – – – – – – – – – – – – – – – – – – – 164 208 80 738 309 89 – 521 – 6 59 – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements BMW of Manhattan Inc., Wilmington, Delaware Rolls-Royce Motor Cars NA LLC, Wilmington, Delaware BMW Financial Services de Mexico S. A. de C. V. SOFOM, Mexico City BMW Leasing de Mexico S. A. de C. V., Mexico City BMW Insurance Agency Inc., Wilmington, Delaware BMW de Argentina S. A., Buenos Aires BMW Consolidation Services Co. LLC, Wilmington, Delaware BMW Leasing do Brasil S. A., São Paulo BMW Acquisitions Ltda., São Paulo BMW Manufacturing Indústria de Motos da Amazônia Ltda., Manaus SB Acquisitions LLC, Wilmington, Delaware BMW Auto Leasing LLC, Wilmington, Delaware BMW FS Securities LLC, Wilmington, Delaware BMW FS Funding Corporation, Wilmington, Delaware BMW Facility Partners LLC, Wilmington, Delaware BMW Manufacturing LP, Woodcliff Lake, New Jersey BMW FS Receivables Corporation, Wilmington, Delaware BMW Receivables 1 Inc., Richmond Hill, Ontario BMW Receivables Ltd. Partnership, Richmond Hill, Ontario BMW Receivables 2 Inc., Richmond Hill, Ontario BMW Extended Service Corporation, Wilmington, Delaware BMW Vehicle Lease Trust 2018-1, Wilmington, Delaware 11 BMW Vehicle Lease Trust 2019-1, Wilmington, Delaware 11 BMW Vehicle Owner Trust 2018-A, Wilmington, Delaware 11 BMW Vehicle Owner Trust 2019-A, Wilmington, Delaware 11 BMW Vehicle Owner Trust 2020-A, Wilmington, Delaware 11 BMW Floorplan Master Owner Trust Series 2018-1, Wilmington, Delaware 11 BMW 2020-A Lease Conduit, Wilmington, Delaware 11 BMW Canada 2018-A, Richmond Hill, Ontario 11 BMW Canada Auto Trust 2018-1, Richmond Hill, Ontario 11 BMW Canada Auto Trust 2019-1, Richmond Hill, Ontario 11 BMW Canada Auto Trust 2020-1, Richmond Hill, Ontario 11 273 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0 0 0 0 0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements Africa BMW (South Africa) (Pty) Ltd., Pretoria BMW Financial Services (South Africa) (Pty) Ltd., Midrand SuperDrive Investments (RF) Ltd., Cape Town 11 Asia BMW Automotive Finance (China) Co. Ltd., Beijing BMW Financial Services Korea Co. Ltd., Seoul BMW Japan Finance Corp., Tokyo BMW China Automotive Trading Ltd., Beijing Herald International Financial Leasing Co. Ltd., Tianjin BMW Korea Co. Ltd., Seoul BMW Leasing (Thailand) Co. Ltd., Bangkok BMW Manufacturing (Thailand) Co. Ltd., Rayong BMW Japan Corp., Tokyo BMW (Thailand) Co. Ltd., Bangkok BMW India Financial Services Private Ltd., Gurgaon BMW Malaysia Sdn Bhd, Kuala Lumpur BMW China Services Ltd., Beijing BMW China Investment Ltd., Beijing 9 BMW Asia Technology Centre Sdn Bhd, Kuala Lumpur PT BMW Indonesia, Jakarta BMW Holding Malaysia Sdn Bhd, Kuala Lumpur BMW Asia Pte. Ltd., Singapore BMW India Private Ltd., Gurgaon BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur BMW Asia Pacific Capital Pte Ltd., Singapore BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur BMW Tokio Corp., Tokyo 2016-2 ABL, Tokyo 11 2017-1 ABL, Tokyo 11 2017-2 ABL, Tokyo 11 274 100 100 0 58 100 100 100 58 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 0 0 0 839 154 – 2,664 610 583 522 259 207 184 140 108 – – – – – – – – – – – – – – – – – 81 7 – 280 55 62 477 36 14 10 84 – 35 – – – – – – – – – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 2017-3 ABL, Tokyo 11 2018-1 ABL, Tokyo 11 2018-2 ABL, Tokyo 11 2018-3 ABL, Tokyo 11 2019-1 ABL, Tokyo 11 2019-2 ABL, Tokyo 11 2019-3 ABL, Tokyo 11 2020-1 ABL, Tokyo 11 Bavarian Sky China 2018-2, Beijing 11 Bavarian Sky China 2019-1, Beijing 11 Bavarian Sky China 2019-2, Beijing 11 Bavarian Sky China 2019-3, Beijing 11 Bavarian Sky China 2020-1, Beijing 11 Bavarian Sky China 2020-2, Beijing 11 Bavarian Sky China Leasing 2019-1, Tianjin 11 Bavarian Sky China Leasing 2019-2, Tianjin 11 Bavarian Sky China Leasing 2020-1, Tianjin 11 Oceania BMW Australia Finance Ltd., Mulgrave BMW Australia Ltd., Melbourne BMW Financial Services New Zealand Ltd., Auckland BMW New Zealand Ltd., Auckland BMW Sydney Pty. Ltd., Sydney BMW Melbourne Pty. Ltd., Melbourne BMW Australia Trust 2011-2, Mulgrave 11 Bavarian Sky Australia Trust A, Mulgrave 11 275 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 100 100 100 100 100 0 0 – – – – – – – – – – – – – – – – – 323 115 – – – – – – – – – – – – – – – – – – – – – – – 21 22 – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements BMW AG’S NON-CONSOLIDATED COMPANIES AT 31 DECEMBER 2020 Companies DOMESTIC 7 Alphabet Fleetservices GmbH, Munich 4 Automag GmbH, Munich BMW Car IT GmbH, Munich 4 BMW i Ventures GmbH, Munich IDEALworks GmbH, Munich FOREIGN 7 Europe Alphabet Insurance Services Polska Sp. z o. o., Warsaw BMW (GB) Ltd., Farnborough BMW (UK) Pensions Services Ltd., Hams Hall BMW Car Club Ltd., Farnborough BMW Drivers Club Ltd., Farnborough BMW Poland sp. z o. o., Warsaw BMW Financial Services Slovakia s. r. o., Bratislava BMW Financial Services Czech Republic s. r. o., Prague BMW Group Benefit Trust Ltd., Farnborough BMW i Ventures B. V., Den Haag BMW Manufacturing Hungary Kft., Vecsés BMW Manufacturing Russland OOO, Kaliningrad BMW Mobility Development Center s. r. o., Prague BMW Motorsport Ltd., Farnborough BMW Russland Automotive OOO, Kaliningrad Cezwei PL GmbH, Salzburg John Cooper Garages Ltd., Farnborough John Cooper Works Ltd., Farnborough OOO BMW Leasing, Moscow U. T. E. Alphabet España-Bujarkay, Seville 276 Equity in € million Profit / loss in € million Capital invest- ment in % – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements The Americas 217-07 Northern Boulevard Corporation, Wilmington, Delaware BMW Experience Centre Inc., Richmond Hill, Ontario BMW i Ventures Inc., Wilmington, Delaware BMW i Ventures LLC, Wilmington, Delaware BMW Leasing de Argentina S. A., Buenos Aires BMW Operations Corp., Wilmington, Delaware BMW Technology Corp., Wilmington, Delaware Designworks / USA Inc., Newbury Park, California MINI Business Innovation LLC, Wilmington, Delaware Urban X Accelerator SPV LLC, Wilmington, Delaware BMW Shared Services LLC, Wilmington, Delaware BMW Mobility Services LLC, Wilmington, Delaware Toluca Planta de Automoviles S. A. de C. V., Mexico City Africa BMW Automobile Distributors (Pty) Ltd., Midrand BPF Midrand Property Holdings (Pty) Ltd., Midrand Multisource Properties (Pty) Ltd., Midrand Asia BMW Finance (United Arab Emirates) Ltd., Dubai BMW Financial Services Hong Kong Ltd., Hong Kong BMW Financial Services Singapore Pte Ltd., Singapore BMW Hong Kong Services Ltd., Hong Kong BMW India Foundation, Gurgaon BMW India Leasing Private Ltd., Gurgaon BMW Insurance Services Korea Co. Ltd., Seoul BMW Middle East Retail Competency Centre DWC-LLC, Dubai BMW Mobility Services Ltd., Sichuan Tianfu New Area (Chengdu Section) BMW Philippines Corp., Manila BMW Technology Office Israel Ltd., Tel Aviv Herald Hezhong (Beijing) Automotive Trading Co. Ltd., Beijing THEPSATRI Co. Ltd., Bangkok 277 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 70 100 100 100 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 278 BMW AG’S ASSOCIATED COMPANIES, JOINT VENTURES AND JOINT OPERATIONS AT 31 DECEMBER 2020 Companies Joint ventures – equity accounted DOMESTIC YOUR NOW Holding GmbH, Munich 8 IONITY Holding GmbH & Co. KG, Munich 8 FOREIGN BMW Brilliance Automotive Ltd., Shenyang 8 Associated companies – equity accounted FOREIGN THERE Holding B. V., Amsterdam 8 Joint operations – proportionately consolidated entities FOREIGN Spotlight Automotive Ltd., Zhangjiagang 8 Not equity accounted or proportionately consolidated entities DOMESTIC 7 Encory GmbH, Unterschleißheim The Retail Performance Company GmbH, Munich PDB – Partnership for Dummy Technology and Biomechanics GbR, Gaimersheim FOREIGN 7 Bavarian & Co Co. Ltd., Incheon BMW Albatha Finance PSC, Dubai BMW Albatha Leasing LLC, Dubai BMW AVTOTOR Holding B. V., Amsterdam Critical TW S. A., Porto Equity in € million Profit / loss in € million Capital invest- ment in % 1,226 244 – 749 – 37 7,388 2,560 50 20 50 1,214 206 30 217 – – – – – – – – – – – – – – – – – 50 50 50 20 20 40 40 50 50 BMW GroupReport 2020 Group Financial Statements Notes to the Group Financial Statements 279 BMW AG’S PARTICIPATIONS AT 31 DECEMBER 2020 Companies DOMESTIC 7 Deutsches Forschungszentrum für Künstliche Intelligenz GmbH, Kaiserslautern GSB Sonderabfall-Entsorgung Bayern GmbH, Baar-Ebenhausen Hubject GmbH, Berlin IVM Industrie-Verband Motorrad GmbH & Co. Dienstleistungs KG, Essen Joblinge gemeinnützige AG Berlin, Berlin Joblinge gemeinnützige AG Leipzig, Leipzig Joblinge gemeinnützige AG München, Munich Racer Benchmark Group GmbH, Landsberg am Lech SGL Carbon SE, Wiesbaden Mobimeo GmbH, Berlin FOREIGN 7 Northvolt AB, Stockholm Equity in € million Profit / loss in € million Capital invest- ment in % – – – – – – – – – – – – – – – – – – – – – – 5 3 16 20 10 17 6 9 18 10 4 1 The amounts shown for the German subsidiaries correspond to the annual financial statements drawn up in accordance with German accounting requirements (HGB). 2 The amounts shown for the foreign subsidiaries correspond to the annual financial statements drawn up in accordance with uniform IFRS rules. Equity and earnings not denominated in euro are translated into euro using the closing exchange rate at the balance sheet date. 3 Profit and Loss Transfer Agreement with BMW AG. 4 Profit and Loss Transfer Agreement with a subsidiary of BMW AG. 5 Exemption from drawing up a management report applied in accordance with § 264 (3) and § 264 b HGB. 6 Exemption from publication of financial statements applied in accordance with § 264 (3) and § 264 b HGB. 7 These entities are neither consolidated nor accounted for using the equity method due to their overall immateriality for the Group Financial Statements. 8 The amounts shown for entities accounted for using the equity method and for proportionately consolidated entities correspond to the annual financial statements drawn up in accordance with uniform IFRS rules. Equity not denominated in euro is translated into euro using the closing exchange rate at the balance sheet date, earnings are translated using the average rate. 9 First-time consolidation. 10 Deconsolidation in the financial year 2020: Sutum ROM GmbH (merger), Société Nouvelle WATT Automobiles S. A. R. L. (merger), Alphabet France SAS (merger), Alphabet (UK) Ltd. (liquidation), BMW Retail Nederland B. V. (liquidation), BMW Amsterdam B. V. (sale). 11 Control on basis of economic dependence. BMW GroupReport 2020 280 Group Financial Statements Notes to the Group Financial Statements Munich, 9 March 2021 Bayerische Motoren Werke Aktiengesellschaft THE BOARD OF MANAGEMENT OLIVER ZIPSE ILKA HORSTMEIER DR. MILAN NEDELJKOVIĆ PIETER NOTA DR. NICOLAS PETER FRANK WEBER DR.-ING. ANDREAS WENDT BMW GroupReport 2020 Corporate Governance 281 CORPORATE GOVERNANCE 282 282 282 283 284 284 284 285 286 289 291 Fundamental Aspects of Corporate Governance (Part of the Combined Management Report) Information on the Company’s Governing Constitution Board of Management Supervisory Board Shareholders and Annual General Meeting Declaration of Compliance Corporate Governance Statement Members of the Board of Management Members of the Supervisory Board Overview of Supervisory Board Committees and their Composition Remuneration Report (Part of the Combined Management Report) 326 Glossary and Explanation of Key Figures 330 331 340 Responsibility Statement by the Company’s Legal Representatives Independent Auditor’s Report Independent Practitioner’s Report BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System FUNDAMENTAL ASPECTS OF CORPO- RATE GOVERNANCE (PART OF THE COM- BINED MANAGEMENT REPORT) Good corporate governance – acting in accordance with the principles of responsible management aimed at increasing enterprise value on a sustainable basis – is an essential requirement for the BMW Group, embracing all areas of the business. Corporate culture within the BMW Group is founded on transparent reporting and corporate communication, corporate governance in the interest of stakeholders, trustful cooperation both of the Board of Management and the Supervisory Board as well as among employees, and compliance with ap­ plicable law. The Board of Management and the Supervisory Board report below on the main features of corporate governance. The Corporate Governance Report pursu­ ant to Principle 22 of the German Corporate Govern­ ance Code (DCGK), as amended on 16 December 2019, is part of the Corporate Governance Statement. which www.bmwgroup.com/ezu (Corporate can be accessed at Governance). 282 INFORMATION ON THE COMPANY’S GOVERNING CONSTITUTION BOARD OF MANAGEMENT The Board of Management manages the enterprise under its own responsibility, acting in the best interests of the BMW Group with the aim of achieving sustainable growth in value. The interests of shareholders, employees and other stakeholders are also taken into account in the pursuit of this aim. In accordance with § 7 of the Articles of Association, the Board of Management of BMW AG comprises two or more persons; other than that, the number of mem­ bers of the Board of Management is determined by the Supervisory Board. At 31 December 2020, the Board of Management comprised seven members. The Board of Management decides on the principal guidelines for managing the enterprise, determines and agrees upon the strategic orientation with the Supervisory Board, and ensures its implementation. The Board of Management is responsible for ensuring that all provisions of law and internal regulations are complied with. Further details on compliance within the BMW Group are available in the section Compliance and Human Rights. The Board of Management is also responsible for ensuring that appro­ priate risk management and risk controlling systems are in place throughout the Group. The designation BMW Group comprises Bayerische Motoren Werke Aktiengesellschaft (BMW AG) and its Group entities. BMW AG is a stock corporation (Aktien­ gesellschaft) within the meaning of the German Stock Corporation Act (Aktiengesetz) and has its registered office in Munich, Germany. It has three representative bodies, namely the Annual General Meeting, the Supervi­ sory Board and the Board of Management. The duties and authorities of those bodies derive from the Stock Corpo­ ration Act and the Articles of Incorporation of BMW AG. Shareholders, as the owners of the business, exercise their rights at the Annual General Meeting. The Board of Man­ agement is fully responsible for managing the enterprise and is monitored and advised by the Supervisory Board. The Supervisory Board appoints the members of the Board of Management and can, for an important reason, revoke an appointment at any time. The Board of Management informs the Supervisory Board and reports to it regularly, promptly and comprehensively, in line with the principles of conscientious and faithful accountability and in accord­ ance with the law and the reporting duties determined by the Supervisory Board. The Board of Management requires the approval of the Supervisory Board for certain major proceedings. The Supervisory Board is not, however, authorised to undertake management measures itself. The close interaction between Board of Management and Supervisory Board in the interests of the enterprise as described above is also known as a “two­tier board structure”. BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System Members of the Board of Management are required to act in the enterprise’s best interests and may not pursue personal interests in their decisions or take advantage of business opportunities intended for the benefit of the BMW Group. Individual members of the Board of Management of BMW AG are required to disclose any conflicts of interest to the Supervisory Board without delay and inform the other members of the Board of Management accordingly. Deliberations are held and decisions taken by the Board of Management as a collegiate body at full Board meetings as well as at Product and Customer full Board meetings. The Board of Management also deliberates and makes decisions at meetings of its three committees – Customer, Operations and Senior Executives. The overall framework for developing business strategies, the use of resources, the implementation of strategies and matters of particular importance to BMW AG are decided upon at Board of Management meetings. SUPERVISORY BOARD BMW AG’s Supervisory Board is composed of ten shareholder representatives (elected by the Annual General Meeting) and ten employee representatives (elected in accordance with the Co­Determination Act). The ten Supervisory Board members representing em­ ployees comprise seven Company employees, including one executive staff representative, and three members elected following nomination by unions. The Supervi­ sory Board has the task of advising and supervising the Board of Management in its management of BMW AG. It is involved in all decisions of fundamental importance for BMW AG. The Supervisory Board appoints the members of the Board of Management and decides upon the level of remuneration they receive. The Supervisory Board can revoke appointments for important reasons. The Board of Management Board has issued terms of procedure for itself. The allocation of areas of responsi­ bility and business segments among the members of the Board of Management is set out in the Board’s Schedule of Responsibilities. Members of the Supervisory Board of BMW AG are obliged to act in the best interest of the enterprise as a whole. They may not pursue personal interests in their decisions or take advantage of business opportunities intended for the benefit of the BMW Group. Further information on the composition and working methods of the Management Board and its committees is provided in the Corporate Governance Statement at www.bmwgroup.com/ezu (Corporate Governance). Members of the Supervisory Board are obliged to inform the full Supervisory Board of any conflicts of interest so that the latter can report to the shareholders at the Annual General Meeting on its treatment of the issue. Conflicts of interest requiring to be disclosed in­ clude, in particular, conflicts of interest that may arise as a result of a consultant or board function with clients, suppliers, lenders or other business partners. Significant and non­temporary conflicts of interest of a Supervisory Board member result in the termination of mandate. 283 The Supervisory Board regularly assesses the effi­ ciency of its activities. To this end, shared discussion is conducted within the Supervisory Board and, at regular intervals, in personal discussions with the Chairman, prepared on the basis of a questionnaire sent in advance, which is drawn up by the Supervisory Board. The Supervisory Board has stated specific targets for its composition, agreed to a diversity concept and deter­ mined a competency profile. Members of the Supervisory Board are responsible for undertaking any training re­ quired for the performance of their duties. The Company provides them with appropriate assistance therein. Taking into account the specific circumstances of the BMW Group and the number of Board members, the Supervisory Board has set up a Presiding Board and four committees, namely the Personnel Committee, the Audit Committee, the Nomination Committee and the Media­ tion Committee. These serve to raise the efficiency of the Supervisory Board’s work and facilitate the handling of complex issues. Composition of the Presiding Board and the various committees is based on legal requirements, the Articles of Incorporation, rules of procedure and corporate gov­ ernance principles, while taking into particular account the expertise of the members concerned. BMW AG ensures that the Supervisory Board and its committees are appropriately equipped to carry out their duties. This includes providing a central Supervi­ sory Board office to support the chairpersons in their coordination work. Further information on the composition and working procedures of the Supervisory Board and its committees is provided in the Corporate Governance Statement at www.bmwgroup.com/ezu (Corporate Governance). BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System 284 SHAREHOLDERS AND ANNUAL GENERAL MEETING DECLARATION OF COMPLIANCE CORPORATE GOVERNANCE STATEMENT Once a year, the Board of Management and the Su­ pervisory Board of BMW AG issue an annual Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) with regard to recommenda­ tions of the Government Commission on the German Corporate Governance Code as officially published and valid at the date of the declaration. BMW AG’s current and previous Declarations of Compliance are available online at www.bmwgroup.com/compliancedeclaration (Corpo­ rate Governance). In the Declaration of Compliance issued in December 2020, the Board of Management and the Supervisory Board declared that all recommen­ dations of the German Corporate Governance Code (version dated 16 December 2019) will be complied with going forward. Further information on corporate management and governance, including the declaration of compliance pursuant to § 161 of the German Stock Corporation Act, can be found in the Corporate Governance Statement (§ 289 f and § 315 HGB) at www.bmwgroup.com/ezu (Corpo­ rate Governance). The shareholders of BMW AG exercise their rights at the Annual General Meeting. The Annual General Meet­ ing decides in particular on the utilisation of unappropri­ ated profit, the ratification of the acts of the members of the Board of Management and of the Supervisory Board, the appointment of the external auditor, changes to the Articles of Incorporation and specified capital measures and elects the shareholders’ representatives to the Su­ pervisory Board. Moreover, the systems for the remuneration of Board of Management members and Supervisory Board mem­ bers are presented to the Annual General Meeting for approval in the case of significant changes, but at least every four years. This is scheduled to take place at the Annual General Meeting in 2021. Shareholders may exercise their voting rights at the Annual General Meeting either in person, by proxy or via a representative designated by BMW AG. Voting rights may also be exercised via postal vote. Due to the Covid­19 pandemic, the 2020 Annual Meeting was held for the first time as a virtual meeting, i. e., without the physical presence of shareholders and proxies, except for the Company representatives bound by instructions issued by shareholders. In this case, the Company enabled shareholders to exercise their voting rights by issuing instructions to Company representatives or by postal vote (in both cases in paper form and online). BMW GroupReport 2020 285 Corporate Governance Fundamental Aspects of Corporate Governance System MEMBERS OF THE BOARD OF MANAGEMENT OLIVER ZIPSE (b.1964) Chairman KLAUS FRÖHLICH (b.1960) Development (until 30 June 2020) Mandates E.ON SE PIETER NOTA (b.1964) Customer, Brands, Sales Mandates Rolls-Royce Motor Cars Limited ♦, Chairman ILKA HORSTMEIER (b.1969) Human Resources, Labour Relations Director DR. NICOLAS PETER (b.1962) Finance DR. MILAN NEDELJKOVIĆ (b.1969) Production Mandates Mandates BMW Brilliance Automotive Ltd.♦, Deputy Chairmann BMW (South Africa) (Pty) Ltd.♦, Chairman BMW Motoren GmbH ♦, Chairman FRANK WEBER (b.1966) Development (since 1 July 2020) DR.-ING. ANDREAS WENDT (b.1958) Purchasing and Supplier Network General Counsel: DR. ANDREAS LIEPE ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System 286 MEMBERS OF THE SUPERVISORY BOARD STEFAN QUANDT (b.1966) Member since 1997, elected until the AGM 2024 CHRISTIANE BENNER² (b.1968) Member since 2014, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Second Chairwoman of IG Metall DR.-ING. DR.-ING. E. H. NORBERT REITHOFER (b.1956) Member since 2015, elected until the Annual General Meeting (AGM) 2025 Chairman of the Supervisory Board Former Chairman of the Board of Management of BMW AG Mandates Siemens Aktiengesellschaft Henkel Management AG (since 22 June 2020) Henkel AG & Co. KGaA (Shareholders’ Committee) MANFRED SCHOCH¹ (b.1955) Member since 1988, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Chairman of the European and General Works Council Industrial Engineer Entrepreneur Mandates DELTON Health AG ♦, Chairman DELTON Technology SE ♦, Chairman Frankfurter Allgemeine Zeitung GmbH ♦ AQTON SE ♦, Chairman Entrust Corp. ♦ Mandates Continental AG, Deputy Chairwoman DR. RER. POL. KURT BOCK (b.1958) Member since 2018, elected until the AGM 2023 Chairman of the Supervisory Board of BASF SE (since 18 June 2020) Mandates BASF SE, Chairman STEFAN SCHMID¹ (b.1965) Member since 2007, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Chairman of the Works Council, Dingolfing FUCHS PETROLUB SE, Chairman Fresenius Management SE ♦ (until 30 June 2020) Münchener Rückversicherungs­Gesellschaft Aktiengesellschaft in München (until 29 April 2020) DR. JUR. KARL-LUDWIG KLEY (b.1951) Member since 2008, elected until the AGM 2021 VERENA ZU DOHNA-JAEGER² (b.1975) Member since 2019, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Chairman of the Supervisory Board of E.ON SE and Deutsche Lufthansa Aktiengesellschaft Department head for Industrial Relations and Co­ determination Policy with the Executive Board of IG Metall / (In-house) counsel Mandates E.ON SE, Chairman Deutsche Lufthansa Aktiengesellschaft, Chairman Mandates ABB AG 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System 287 DR.-ING. HEINRICH HIESINGER (b.1960) Member since 2017, elected until the AGM 2022 PROF. DR. RER. POL. RENATE KÖCHER (b.1952) Member until 14 May 2020 SIMONE MENNE (b.1960) Member since 2015, elected until the AGM 2021 Member of supervisory boards Director of Institut für Demoskopie Member of supervisory boards Mandates Deutsche Post AG Allensbach Gesellschaft zum Studium der öffentlichen Meinung mbH Mandates Deutsche Post AG Fresenius Management SE ♦ (since 1 July 2020) Mandates Henkel AG & Co. KGaA (since 17 June 2020) ZF Friedrichshafen AG ♦ (since 1 January 2021) Infineon Technologies AG (until 20 February 2020) PROF. DR. RER. NAT. DR. H. C. REINHARD HÜTTL (b.1957) Member since 2008, elected until the AGM 2023 Scientific Director and Managing Director of EUREF Energy Innovation GmbH University Professor SUSANNE KLATTEN (b.1962) Member since 1997, elected until the AGM 2024 Entrepreneur Mandates SGL Carbon SE, Chairwoman ALTANA AG ♦, Deputy Chairwoman UnternehmerTUM GmbH ♦,Chairwoman Nestlé Deutschland AG ♦ Robert Bosch GmbH ♦ HORST LISCHKA² (b.1963) Member since 2009, elected until the AGM 2021 Secretary with the Executive Board of IG Metall Mandates KraussMaffei Group GmbH ♦ MAN Truck & Bus SE ♦ München Klinik gGmbH (until 15 May 2020) WILLIBALD LÖW¹ (b.1956) Member since 1999, elected until the AGM 2024 Chairman of the Works Council, Landshut Springer Nature AG & Co. KGaA ♦ (until 3 March 2020) Johnson Controls International plc Russell Reynolds Associates Inc. ♦ DR. DOMINIQUE MOHABEER¹ (b.1963) Member since 2012, elected until the AGM 2024 Member of the Works Council, Munich BRIGITTE RÖDIG¹ (b.1963) Member since 2013, elected until the AGM 2024 Member of the Works Council, Dingolfing 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System 288 ANKE SCHÄFERKORDT (b.1962) Member since 14 May 2020, elected until the AGM 2025 WERNER ZIERER¹ (b.1959) Member since 2001, elected until the AGM 2024 Member of supervisory boards Chairman of the Works Council, Regensburg Mandates BASF SE Serviceplan Group Management SE ♦ Wayfair Inc. DR. VISHAL SIKKA (b.1967) Member since 2019, elected until the AGM 2024 CEO & Founder, Vianai Systems, Inc. Mandates Oracle Corporation DR. THOMAS WITTIG³ (b.1960) Member since 2019, elected until the AGM 2024 Senior Vice President Financial Services Mandates BMW Bank GmbH ♦, Chairman BMW Automotive Finance (China) Co., Ltd. ♦, Chairman 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System OVERVIEW OF SUPERVISORY BOARD COMMITTEES AND THEIR COMPOSITION 289 Principal duties, basis for activities Members PRESIDING BOARD — preparation of Supervisory Board meetings to the extent that the subject matter to be discussed does not fall within Norbert Reithofer 1, Manfred Schoch, Stefan Quandt, Stefan Schmid, Karl-Ludwig Kley Norbert Reithofer 1, Manfred Schoch, Stefan Quandt, Stefan Schmid, Karl-Ludwig Kley Kurt Bock 1, 2, Norbert Reithofer, Manfred Schoch, Stefan Quandt, Stefan Schmid the remit of a committee — activities based on terms of procedure PERSONNEL COMMITTEE — preparation of decisions relating to the appointment and revocation of appointment of members of the Board of Management, the remuneration and the regular review of the Board of Management’s remuneration system — conclusion, amendment and revocation of employment contracts (in conjunction with the resolutions taken by the Supervisory Board regarding the remuneration of the Board of Management) and other contracts with members of the Board of Management — decisions relating to the approval of ancillary activities of Board of Manage ment members, including acceptance of non-BMW Group supervisory mandates as well as the approval of transactions requiring Supervisory Board approval by dint of law (e. g. loans to Board of Management or Supervisory Board members) — established in accordance with the recommendation contained in the German Corporate Governance Code, activi- ties based on terms of procedure AUDIT COMMITTEE — supervision of the financial reporting process, the effectiveness of the internal control system, the risk management system, as well as the performance of Supervisory Board duties in connection with audits pursuant to § 32 of the German Securities Trading Act (WpHG) — supervision of external audit, in particular auditor independence and additional work performed by external auditor — preparation of proposals for election of external auditor at Annual General Meeting, engagement (recommendation) of external auditor, determination of additional areas of audit emphasis and fee agreements with external auditor — preparation of Supervisory Board’s resolution on Company and Group Financial Statements — discussion of interim reports with Board of Management prior to publication — preparation of the Supervisory Board’s audit of the non-financial reporting, preparation of the selection of the audi- tor for non-financial reporting and engagement of the auditor — supervision of internal audit system and compliance as well as the audit and supervision of any needs for action related to possible violations of duties by members of the Board of Management in preparation of a resolution in the Supervisory Board — decision on approval for utilisation of Authorised Capital 2019 — amendments to Articles of Incorporation only affecting wording — established in accordance with the recommendation contained in the German Corporate Governance Code, activi- ties based on terms of procedure BMW GroupReport 2020 Corporate Governance Fundamental Aspects of Corporate Governance System 290 Principal duties, basis for activities Members NOMINATION COMMITTEE — identification of suitable candidates as shareholder representatives on the Supervisory Board to be put forward for inclusion in the Super visory Board’s proposals for election at the Annual General Meeting — established in accordance with the recommendation contained in the German Corporate Governance Code, activi- ties based on terms of procedure MEDIATION COMMITTEE — proposal to Supervisory Board if resolution for appointment of Board of Management member has not been carried by the necessary two-thirds majority of Supervisory Board members’ votes — established as required by law 1 Chair. 2 (Independent) financial expert within the meaning of §§ 100 (5) and 107 (4) AktG, C.10, D.4 DCGK. Norbert Reithofer 1, Susanne Klatten, Karl-Ludwig Kley, Stefan Quandt (In line with the recommendations of the German Corporate Governance Code, the Nomination Committee comprises only shareholder representatives.) Norbert Reithofer, Manfred Schoch, Stefan Quandt, Stefan Schmid (In accordance with statutory require ments, the Mediation Committee comprises the Chairman and Deputy Chairman of the Supervisory Board and one member each selected by shareholder representatives and employee representatives.) BMW GroupReport 2020 Corporate Governance Remuneration Report 291 REMUNERATION REPORT (PART OF THE COMBINED MANAGE- MENT REPORT) The following section describes the principles gov­ erning the remuneration of the Board of Management and the stipulations set out in the statutes relating to the remuneration of the Supervisory Board. In addition to explaining the system of remuneration for the financial years 2018 to 2020, details of components of remuner­ ation are also provided with figures. Furthermore, the remuneration of each member of the Board of Manage­ ment and the Supervisory Board for the financial year 2020 is disclosed by individual member and analysed with its component parts. The Supervisory Board has resolved a new remuner­ ation system for the Board of Management for financial year from 2021 onwards. In accordance with the statu­ tory requirements, the new remuneration system will be submitted to the 2021 Annual General Meeting for resolution. 1. Board of Management remuneration Responsibilities The determination and regular review of the system and structure of Board of Management remuneration is a task of the full Supervisory Board, as is the determi­ nation of the individual level of remuneration of Board of Management members. The Supervisory Board’s Personnel Committee assumes a preparatory function in determining and reviewing the system and level of Board of Management remuneration. The Supervisory Board reviews the remuneration system annually for appropriateness in terms of structure, target and maximum remuneration as well as and actual remuneration. In preparation, the Personnel Committee also consults remuneration studies. In order to check that the remuneration system is in line with peers, the Supervisory Board compares remuneration paid by oth­ er DAX companies in horizontal terms. For a vertical view, it compares Board remuneration with the salaries of executive managers and with the average salaries of employees of BMW AG based in Germany, also with re­ gard to the development over time. Recommendations made by an independent external remuneration expert and suggestions made by investors and analysts are also considered in the consultative process. The Supervisory Board is required to submit the re­ muneration system to the Annual General Meeting for approval in the event of significant changes, but at least every four years. The remuneration system valid for the 2020 financial year was approved by the Annual General Meeting in 2018. Principles of remuneration The remuneration system for the Board of Manage­ ment at BMW AG is designed to encourage a manage­ ment approach focused on the sustainable and long­term development of the BMW Group. One further principle applied when designing remuneration systems at BMW is that of consistency at different levels. This means that re­ muneration systems for the Board of Management, senior management and employees of BMW AG are composed of similar elements. The Supervisory Board performs an annual review to ensure that all Board of Management re­ muneration components are appropriate, individually and in total, and do not encourage the Board of Management to take inappropriate risks for the BMW Group. At the same time, the remuneration model used for the Board of Management needs to be attractive for highly qualified executives in a competitive environment. The remuneration of members of the Board of Man­ agement is determined by the full Supervisory Board on the basis of performance criteria and after taking into account any remuneration received from Group companies. The principal performance criteria are the tasks and exercise of mandate of the Board member, the economic situation as well as the performance and future prospects of the BMW Group. The Supervisory Board sets ambitious and relevant parameters as the basis for variable remuneration. It also ensures that variable components based on multi­year criteria take account of both positive and negative developments and that the overall incentive is on the long term. As a general rule, targets and comparative parameters may not be changed retrospectively. BMW GroupReport 2020 Corporate Governance Remuneration Report Remuneration system, remuneration components Board of Management remuneration comprises fixed and variable cash elements as well as a share­based com­ ponent. Retirement and surviving dependants’ benefit entitlements are also in place. The remuneration com­ ponents are described in more detail below. OVERVIEW OF REMUNERATION SYSTEM FOR FINANCIAL YEARS 2018 – 2020: DEPICTION OF ALLOCATION TO CASH BENEFITS (TARGET REMUNERATION) AND PEN- SION CONTRIBUTION ¹ in % approx. 8 Pension contribution approx. 14 Share-based remuneration approx. 27 Base salary approx. 8 Earnings-based component of the bonus approx. 24 Performance Cash Plan approx. 19 Performance component of the bonus 1 Simplified depiction of target amounts for the variable cash remuneration of the Chairman of the Board of Management and pension contribution. Excludes other remuneration. Based on the assumption that the share price remains unchanged for the calculation of the matching component. 292 OVERVIEW OF REMUNERATION SYSTEM FOR FINANCIAL YEARS 2018 – 2020: DEPICTION OF VARIABLE REMU- NERATION (TARGET REMUNERATION) ² Variable remuneration The variable remuneration of the Board of Manage­ ment comprises three components: — Bonus — Performance Cash Plan — Share­based remuneration Payment of a discretionary additional bonus is not pro­ vided for. An upper limit has been set for each component of variable remuneration (see Overview of remuneration system and remuneration components). Bonus Assuming 100 % target achievement, the bonus for the 2020 financial year comprises an earnings­related compo­ nent of 30 % and performance­related component of 70 %. The target bonus (100 %) is € 0.85 million p. a. for a Board member during the first period of office, € 1.0 million p. a. from the second period of office or the fourth year of mandate and € 1.8 million p. a. for the Chairman of the Board of Management. For all Board members, the upper limit of the bonus is set at 180 % of the relevant target bonus. in % approx. 22 Share-based remuneration approx. 37 Performance Cash Plan approx. 12 Earnings-based component of the bonus approx. 29 Performance component of the bonus 2 Simplified depiction of target amounts for the variable cash remuneration of the Chairman of the Board of Man- agement. Excludes basic salary, other remuneration and pension contribution. Based on the assumption that the share price remains unchanged for the calculation of the matching component. Fixed remuneration Fixed remuneration consists of a base salary, which is paid monthly, and fringe benefits (other remuneration elements such as the use of Company cars, insurance pre­ miums and contributions towards security systems). The basic remuneration of Board of Management members for the financial year 2020 is € 0.8 million p. a. for a Board member during the first period of office, € 0.95 million p. a. for a Board member with effect from the second period of office or the fourth year of mandate and € 1.8 million p. a. for the Chairman of the Board of Management. BMW GroupReport 2020 Corporate Governance Remuneration Report 293 In order to calculate the earnings­related component, an earnings factor is determined on the basis of the target parameters and multiplied by 30 % of the target bonus amount. The level of the earnings­related component depends on the degree to which the targets set by the Su­ pervisory Board for Group net profit and Group post­tax return on sales are achieved. The degree of achievement is expressed in an earnings factor. The underlying meas­ urement values for the bonus payable for the financial year 2020 were determined three financial years ago (i. e. back in 2017) and may not be changed retrospectively. The earnings factor is capped at a maximum value of 1.8. The bonus is paid out after the end of the Annual General Meeting, at which the separate financial statements of BMW AG for the relevant financial year are presented. For the financial year 2020, an earnings factor of 1.000 would give rise to an earnings­related component of € 0.255 million for a Board member in the first period of office, € 0.3 million from the second period of office or the fourth year of mandate and € 0.54 million for the Chairman of the Board of Management. For instance, in the event of a Group net profit of € 5.3 billion and a post­tax return on sales of 5.6 %, the earnings factor is 1.000. Similarly, a Group net profit of € 6.9 billion and a post­tax return on sales of 7.3 % gives rise to an earnings factor of 1.500 and a Group net profit of € 9.0 billion and a post­tax return on sales of 8.0 % to one of 1.637. A minimum earnings factor of 0.135 arises in the event of a Group net profit of € 3 billion and a post-tax return on sales of 3 %. If the Group net profit were below € 3 billion or the post­tax return on sales below 3 %, the earnings EARNINGS COMPONENTS: ALLOCATION TABLE FOR CALCULATING EARNINGS FACTOR ¹ % n i s e l a s n o n r u t e r x a t - t s o p p u o r G 9.0 Upper limit 8.0 7.4 7.3 5.6 4.8 3.9 1.500 1.000 0.444 ⁴ 0.798 ³ 3.0 Lower Limit 0.135 1.520 ² 1.637 1.800 3.0 Lower limit 3.9 5.0 5.3 6.9 7.2 9.0 11.0 Upper Limit Group net profit after tax (in € billion) 1 Simplified depiction 2 Earnings factor 2018 3 Earnings factor 2019 4 Earnings factor 2020 factor would be zero. In this case, an earnings­related component would not be paid. The maximum earnings factor of 1.800 is reached in the event of a Group net profit of € 11 billion and a post-tax return on sales of 9 %. In exceptional circumstances, for instance major acquisitions or disposals, the Supervisory Board may adjust the earnings factor. The performance­related component for the financial year 2020 bonus is calculated using a performance factor which the Supervisory Board has set for each member of the Board of Management and which is multiplied by 70 % of the target bonus amount. The Supervisory Board sets the performance factor on the basis of a detailed evaluation of the contribution made by Board members to sustainable and long­term business development over a period of at least three financial years. The evaluation by the Supervisory Board is based on predefined criteria that take into account the Group’s long­term success, the interests of shareholders and stakeholders as well as social responsibility. The criteria include in particular innovation (econom­ ic and ecological, for example in the reduction of carbon emissions), the Group’s market position compared to its competitors, customer focus, ability to adapt, leadership, corporate culture, promotion of compliance and integrity, contribution to the Group’s attractiveness as an employ­ er, progress in implementing the diversity concept, and activities that foster corporate social responsibility. The Supervisory Board also draws comparisons with com­ petitors. The individual performance factor lies between zero and a maximum 1.8. BMW GroupReport 2020 294 business development during the evaluation period, the forecast trend in the business development, the Board member’s individual contribution to profitability and the status of compliance within the Board member’s area of responsibility. The multi­year performance factor can be between 0.9 and 1.1. Members of the Board of Management who were Board members on 1 January 2018 received and will receive an advance payment out of the 2018 – 2020 Per­ formance Cash Plan in 2019 and from the 2019 – 2021 Performance Cash Plan in 2020. At the end of each rele­ vant assessment period, the advance payment is set off or repaid, depending on the amount then determined. The advance payment for each relevant year is € 0.5 million for a Board member in the first period of office and € 0.6 mil­ lion from the second period of office or the fourth year of mandate. For the Chairman of the Board of Management the amount is € 0.9 million p. a. Corporate Governance Remuneration Report BONUS OVERVIEW EARNINGS COMPONENT BONUS Earnings factor x 0.3 of target amount — Value between 0 and 1.8 Basis for earnings factor: — Group net profit — Group post-tax return on sales + PERFORMANCE COMPONENT Performance factor x 0.7 of target amount — Value between 0 and 1.8 = TOTAL — Cash payment — Capped at 180 % of target amount Basis for performance factor: — Contribution to sustainable and long-term business development over a period of at least three financial years — Qualitative, mainly non-financial parameters Performance Cash Plan Up to and including the grant year 2020, variable cash remuneration includes a multi­year and future­oriented Performance Cash Plan (PCP). The PCP is calculated at the end of a three­year evaluation period by multiplying a predefined target amount by a factor that is based on multi­year target achievement (the PCP factor). The PCP target amount (100 %) amounts to € 0.85 million p. a. for a Board member in the first period of office, € 0.95 million p. a. from the second period of office or the fourth year of mandate and € 1.6 million p. a. for the Chairman of the Board of Management. The maximum amount that can be paid to a Board member is capped at 180 % of the PCP target amount p. a. The PCP evaluation period comprises three years, the grant year and the two subsequent years. PCP entitle­ ments are paid in cash. The bonus is paid out after the end of the Annual General Meeting, at which the separate financial statements of BMW AG for the third year of the evaluation period are presented. In order to determine the PCP factor, a multi­year profit factor is multiplied by a multi­year performance factor. The PCP factor is capped at a maximum value of 1.8. In order to determine the multi­year earnings factor, an earnings factor is calculated for each year of the three­ year evaluation period and an average is then calculated for the evaluation period. As for the earnings­related component of the bonus, the earnings factor for each indi­ vidual year within the evaluation period is determined on the basis of Group net profit and post­tax return on sales for the relevant year. The maximum earnings factor is 1.8. The underlying measurement values are determined in advance for a period of three financial years and may not be changed retrospectively. In addition to the multi­year earnings factor, the Su­ pervisory Board also determines a multi­year performance factor after the end of the evaluation period. To this end, the Supervisory Board takes account in particular of the BMW GroupReport 2020 Corporate Governance Remuneration Report PERFORMANCE CASH PLAN OVERVIEW TARGET AMOUNT PCP FACTOR OVERVIEW MULTI-YEAR EARNINGS FACTOR — Average earnings factor — Based on Group net profit and Group post-tax return on sales — Value between 0 and 1.8 × × PCP FACTOR = CASH PAYMENT — Cash payment at end of evaluation period — Capped at 180 % of target amount PCP FACTOR = MULTI-YEAR PERFORMANCE FACTOR Measurement based on multi-year performance factor: — Trend in business development — Status of compliance in each Board member’s area of responsibility — Individual contribution to profitability — Forecast trend in business development — Value between 0.9 and 1.1 Share-based remuneration At the end of the Annual General Meeting at which the separate financial statements of BMW AG for the relevant financial year are presented, members of the Board of Management receive for financial years up to and including the financial year 2020 a cash remuner­ ation (investment component) for the specific purpose of investment – after tax and deductions – in shares of common stock of BMW AG. The investment component corresponds to 45 % of the gross bonus. The shares of common stock are purchased immediately after the investment component has been paid out. As a gener­ al rule, the acquired shares are required to be held by Board members for four years. This period also applies if a Board member leaves the Board of Management, including in the case of retirement. At the end of the holding period, Board members receive from the Company, for every three shares of com­ mon stock held, either one additional share of common stock or the cash equivalent, to be decided at the Compa­ ny’s discretion (matching component). Upper limits have been defined for both the investment component and the matching component (see Overview of remuneration system and remuneration components). 295 Other In the event of death or invalidity, special rules apply for early payment of performance cash plans and share­ based remuneration components based on the target amounts. Insofar as the service contract is prematurely terminated and the Company has an extraordinary right of termination, or if the Board member resigns without the Company’s agreement, entitlements to amounts as yet unpaid relating to performance cash plans and share­ based remuneration are forfeited. A one­year post­contractual non­competition clause has been agreed with the Board members under speci­ fied circumstances against payment of a remuneration amount. Service agreements taking effect after 1 Janu­ ary 2021 provide for the payment of a monthly amount corresponding to the respective monthly base salary dur­ ing the period of the post­contractual non­competition clause. In accordance with the recommendation of the German Corporate Governance Code dated 16 Decem­ ber 2019, any severance payment is offset against the non­competition clause remuneration amount. The same applies to other income, unless it relates to remuneration for supervisory board mandates approved during the term of office. The Company may unilaterally waive the requirement to comply with the post­contractual non­competition clause. BMW GroupReport 2020 Corporate Governance Remuneration Report 296 Overview for Financial Years 2018 – 2020 of remuneration system and remuneration components Component BASE SALARY VARIABLE REMUNERATION Bonus (sum of earnings-related bonus and performance-related bonus) a) Earnings-related bonus (at 100 % target achievement corresponds to 30 % of target amount) Parameter / measurement base Member of the Board of Management: — € 0.80 million p. a. (first period of office) — € 0.95 million p. a. (from second period of office or fourth year of mandate) Chairman of the Board of Management: — € 1.80 million p. a. Target amount p. a. (at 100 % target achievement): — € 0.85 million (first period of office) — € 1.0 million (from second period of office or fourth year of mandate) — € 1.8 million (Chairman of the Board of Management) — Capped at 180 % of target amount, see section Remuneration caps — Payment at the end of the Annual General Meeting at which the separate financial statements of BMW AG are presented — Formula: 30 % target amount x earnings factor — Base amount p. a. (30 % target amount per bonus): — € 0.255 million (first period of office) — € 0.30 million (from second period of office or fourth year of mandate) — € 0.54 million (Chairman of the Board of Management) — Earnings factor is derived from Group net profit and Group post-tax return on sales — Allocation table fixed in advance for a period of three financial years — The earnings factor is 1.0 in the event of a Group net profit of € 5.3 billion and a post-tax return on sales of 5.6 % — Earnings factor may not exceed 1.8 — Maximum amount of earnings-related bonus p. a.: — € 0.459 million (first period of office) — € 0.54 million (from second period of office or fourth year of mandate) — € 0.972 million (Chairman of the Board of Management) BMW GroupReport 2020 Corporate Governance Remuneration Report 297 Component b) Performance-related bonus (at 100 % target achievement corresponds to 70 % of target amount) Performance Cash Plan a) Multi-year earnings factor b) Multi-year performance factor Parameter / measurement base — Formula: 70 % target amount x performance factor — Base amount p. a. (70 % target amount per bonus): — € 0.595 million (first period of office) — € 0.70 million (from second period of office or fourth year of mandate) — € 1.26 million (Chairman of the Board of Management) — Primarily qualitative, non-financial criteria, expressed in terms of a performance factor aimed at measuring the Board member’s contribution to the sustainable and long-term development and the future viability of the Company over a period of at least three financial years — Criteria for the performance factor include: innovation (economic and ecological, for example in the reduction of carbon dioxide emissions), the Group’s market position compared to its competitors, customer focus, ability to adapt, leader- ship, corporate culture, promotion of compliance and integrity, contribution to the Group’s attractiveness as an employ- er, progress in implementing the diversity concept, and activities that foster corporate social responsibility, reputation — Performance factor may not exceed 1.8 — Maximum amount of performance-related bonus p. a.: — € 1.071 million (first period of office) — € 1.26 million (from second period of office or fourth year of mandate) — € 2.268 million (Chairman of the Board of Management) Target amount p. a. (at 100 % target achievement): — € 0.85 million (first period of office) — € 0.95 million (from second period of office or fourth year of mandate) — € 1.6 million (Chairman of the Board of Management) — Three-year evaluation period — Capped at 180 % of target amount, see section Remuneration caps — Formula: PCP factor x target amount — PCP factor: multi-year earnings factor x multi-year performance factor — PCP factor may not exceed 1.8 — Payment at the end of the Annual General Meeting at which the separate financial statements of BMW AG for the third year of the evaluation period are presented — Earnings factor for each year of three-year evaluation period derived from Group net profit and Group post-tax return on sale — Earnings factor for each year may not exceed 1.8 — Average for evaluation period calculated — Determined by Supervisory Board at end of evaluation period — Criteria include in particular the trend in business development during the evaluation period, the forecast trend in business development, individual contribution to profitability and the status of compliance within the Board member’s area of responsibility — Multi-year performance factor can be between 0.9 and 1.1 BMW GroupReport 2020 Corporate Governance Remuneration Report Component Share-based remuneration programme a) Cash remuneration component (investment component) b) Share-based remuneration component (matching component) OTHER REMUNERATION 298 Parameter / measurement base — Requirement for Board of Management members to invest an amount of 45 % of the gross bonus after tax and contributions in BMW AG common stock — Requirement for Board of Management members to hold the acquired shares of common stock for four years — Earmarked cash remuneration amounting to 45 % of the gross bonus — Cash remuneration p. a. at 100 % target achievement of the bonus: — € 0.3825 million (first period of office) — € 0.45 million (from second period of office or fourth year of mandate) — € 0.81 million (Chairman of the Board of Management) — Maximum remuneration, see section Remuneration caps — Payment at the end of the Annual General Meeting at which the separate financial statements of BMW AG for the relevant financial year are presented — Share acquisition immediately after payment of earmarked cash remuneration — Once the four-year holding period requirement is fulfilled, Board of Management members receive for each three common stock shares held either – at the Company’s option – one further share of common stock or the equivalent amount in cash — Maximum remuneration, see section Remuneration caps Contractual agreement, main points: non-cash benefits from use of Company car, use of corporate cars or the BMW chauffeur service, insurance premiums, contributions towards security systems BMW GroupReport 2020 Corporate Governance Remuneration Report 299 Overview for Financial Years 2018 – 2020 of remuneration system and remuneration components onwards RETIREMENT BENEFITS Model Principal features Defined contribution system with guaranteed minimum rate of return Pension based on amounts credited to individual savings accounts for contributions paid and interest earned, various forms of disbursement Pension contributions p. a.: Member of the Board of Management: € 350,000 Chairman of the Board of Management: € 500,000 REMUNERATION CAPS (MAXIMUM REMUNERATION) in € p. a. Bonus Performance Cash Plan Cash remuneration for share acquisition Monetary value of matching component Total* Share-based remuneration programme Member of the Board of Management in the first period of office Member of the Board of Management in the second period of office or from fourth year of mandate Chairman of the Board of Management 1,530,000 1,530,000 688,500 344,500 4,925,000 1,800,000 3,240,000 1,710,000 2,880,000 810,000 1,458,000 405,000 729,000 5,500,000 9,850,000 * Including base salary, other fixed remuneration elements and pension contribution. For the purposes of the overall cap, German accounting rules (HGB) require the relevant grant year to be taken in the calculation for the PCP; in the case of the matching component, the actual amount deemed to have been received is required to be added retrospectively to the total remuneration of the grant year concerned. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Retirement benefits With effect from 1 January 2010, the provision of retirement benefits for members of the Board of Man­ agement was changed to a defined contribution system with a guaranteed minimum return. If a mandate is terminated, the defined contribution system provides, in the case of death or invalidity, for amounts accumulated on individual pension accounts to be paid out as a one­off amount or in instalments. For entitlements arising before 2016, there is an option to receive payment as a lifelong pension or in a combined form. Former Board members are entitled to receive the retirement benefit at the earliest upon reaching the age of 60, or in the case of entitlements awarded for the first time after 1 January 2012, upon reaching the age of 62. The amount of the benefits to be paid is determined on the basis of the amount accrued in each Board mem­ ber’s individual pension savings account. The amount on this account results from annual contributions paid in, plus interest earned depending on the type of investment. If a member of the Board of Management with a vested entitlement dies prior to the commencement of benefit payments, a surviving spouse or registered part­ ner, or otherwise surviving children – in the latter case depending on their age and education – are entitled to receive benefits as surviving dependants. In the case of death or invalidity, a minimum benefit is payable based on the number of contributions possible up to the age of 60 (subject to maximum of ten contribu­ tions). The annual contribution paid by the Company for the financial year 2020 is € 350,000 for a Board member and € 500,000 for the Chairman of the Board of Management. The guaranteed minimum rate of return p. a. corresponds to the maximum interest rate used to calculate insurance reserves for life insurance policies (guaranteed interest on life insurance policies). When granting pension entitle­ ments, the Supervisory Board considers the targeted level of pension provision in each case as well as the resulting expense for the BMW Group. Contributions falling due under the defined contribu­ tion model are paid into an external fund in conjunction with a trust model that is also used to fund pension obli­ gations to employees. BMW GroupReport 2020 Corporate Governance Remuneration Report Income earned on an employed or a self­employed basis up to the age of 63 may be offset against instalment payments. In addition, certain circumstances have been specified, in the event of which the Company no longer has any obligation to pay benefits. Transitional payments are not provided. In the event of the death of a Board member during the service contract term, the base remuneration for the month of death and a maximum of three further calendar months are paid to entitled surviving dependants. Members of the Board of Management who retire immediately after their service on the Board, or who are deemed to be in an equivalent position, are entitled to acquire vehicles and other BMW Group products and services at conditions that also apply to BMW pensioners and to lease BMW Group vehicles in accordance with the guidelines applicable to senior heads of departments. Retired Chairmen of the Board of Management are en­ titled to use a BMW Group vehicle as a company car on a similar basis to senior heads of departments, and depending on availability and against payment, use BMW chauffeur services. Termination benefits on premature termination of Board activities, benefits paid by third parties Klaus Fröhlich left the Board of Management on 30 June 2020. In accordance with the provisions of his service contract, a one­year post­contractual non­com­ petition clause applies. The proportionate amount of remuneration relating to the financial year 2020 is € 0.3 million. The corresponding figure for the remaining period from 1 January 2021 to 30 June 2021 is € 0.3 mil­ lion, for which a provision has been recognised. In line with the recommendation of the German Cor­ porate Governance Code dated 16 December 2019, Board of Management service contracts provide for severance pay to be paid to the Board member in the event of pre­ mature termination by the Company without important reason, the amount of which is limited to a maximum of two years’ remuneration (severance payment cap). If the remaining term of the contract is less than two years, the severance payment is reduced proportionately. For these purposes, annual remuneration is based on the sum of base remuneration and the target amount of variable remuneration components for the last full financial year before termination. If the relevant target amount for variable remuneration was not reached, the amounts granted are used instead. 300 No commitments or agreements exist for payment of remuneration in the event of early termination of a Board member’s mandate due to a change of control or a takeover offer. No members of the Board of Manage­ ment received any payments or relevant commitment from third parties in 2020 on account of their activities as members of the Board of Management. Remuneration caps The Supervisory Board has stipulated upper limits for all variable remuneration components and for the remuneration of Board of Management members in total. The total upper limit amounts are lower than the sum of the maximum amounts applicable for the individual components. The upper limits are shown in the table Overview of remuneration system and remuneration components for the financial years 2018 – 2020. BMW GroupReport 2020 Corporate Governance Remuneration Report Total remuneration of the Board of Management for the financial year 2020 (2019) The total remuneration of the current members of the Board of Management of BMW AG for the financial year 2020 amounted to € 17.5 million (2019: € 21.4 million), of which € 7.3 million (2019: € 8.1 million) relates to fixed components (including other remuneration). Variable components amounted to € 9.7 million (2019: € 12.6 mil­ lion) and the share­based remuneration component to € 0.5 million (2019: € 0.7 million). In particular, the members of the Board of Manage­ ment jointly exceeded the targets for the following criteria deemed particularly relevant by the Supervisory Board: — Market position compared to competitors: Despite the restrictions due to the pandemic, the BMW Group re­ mained the world’s leading manufacturer of premium automobiles for the 17th year in succession. Sales of electrified vehicles saw a sharp rise compared to the previous year. For the financial year 2020, the BMW Group achieved a net profit of € 3,857 million (2019: € 5,022 million) and a post­tax return on sales of 3.9 % (2019: 4.8 %). According to the defined allocation table, these results yield an earnings factor of 0.444 (2019: 0.798) for the earnings component relevant for the bonus for the financial year 2020. In determining the performance factor, the Su­ pervisory Board uses agreed­upon criteria to evaluate the contribution of Board members to the sustainable and long­term development and future viability of the BMW Group. The Supervisory Board’s decision­making process is based on a detailed, documented analysis of performance based on all agreed­upon criteria, as well as in­depth dis­ cussions at Personnel Committee and full Supervisory Board level. DELIVERIES OF ELECTRIFIED VEHICLES Units / Year 230,000 115,000 0 192,662 146,158 + 31.8 % PHEV 106,639 148,121 BEV 39,519 44,541 2019 2020 301 DELIVERIES OF ELECTRIFIED VEHICLES Units / Year 200,000 150,000 100,000 50,000 2016 2017 2018 2019 2020 BMW GroupReport 2020 Corporate Governance Remuneration Report — Ecological benefits from innovation: At 99 g / km ¹, ² the figure for the BMW Group’s fleet carbon emis­ sions was 5 g / km below the EU legal limit, as in previous years. Further progress is likely to be made in the foreseeable future on the back of measures already adopted. FLEET EMISSIONS IN THE EU ¹ in CO₂ g / km 130 110 90 2018 2019 2020 2 302 — Customer orientation: As in previous years, the BMW Group won several industry awards for concept studies on various vehicles and plants, assessed on the basis of the concept of quality. — Customer orientation and innovative solutions: New software was installed in approximately 624,000 vehi­ cles via remote upgrades, without the need for a visit to a service partner. The proportion of new vehicles sold with the new software has risen sharply over the past few years, and a further increase in the number of such vehicles is foreseeable as a result of product decisions already taken. — Reputation: Capital market rating agencies once again ranked the BMW Group as the best European automo­ bile manufacturer. The BMW Group again performed excellently in sustainability indices such as the Dow Jones Sustainability Index, taking first place in the “Automobiles” segment as the most sustainable man­ ufacturer. It is also in the top CDP grouping (Climate A List). — Adaptability: Prudent management limited the im­ pact of the pandemic on the Group, particularly in terms of keeping global supply chains running. On the basis of these criteria, the Supervisory Board’s first calculated and then set a performance factor of 1.15 for all members of the Board of Management for the financial year 2020 (2019: 1.20). In the case of the 2020 grant year, the PCP assess­ ment period covers the financial years 2020 to 2022. The target amount for the PCP 2020 – 2022 is € 1.6 million for Mr Zipse, € 0.85 million each for Ms Horstmeier, Mr Nedeljković, Mr Nota and Dr Wendt, € 0.95 million for Dr Peter and € 0.425 million for Mr Weber. The target amount for Mr Fröhlich is € 0.475 million. Due to the fact that the criteria established for the PCP 2020 – 2022 have not yet been fully met, this component is not included in variable remuneration for the financial year 2020. In the 2020 financial year, in line with contractually agreed arrangements, advances were paid out of the PCP 2019 – 2021 to the Board members in office at 31 Decem­ ber 2020 (Mr Zipse, Mr Nota and Dr Peter) with a total amount of € 1.7 million, and an advance of € 0.6 million paid to Mr Fröhlich. At the end of assessment period, the advance pay­ ments will be set off or refunded, depending on the actual entitlement arising. The expense of the PCP for the financial year 2020 recognised in accordance with IAS 19 amounted to € 1.3 million (2019: € 8.3 million). Remuneration awarded for the financial year 2020 (2019) is presented in the table below on an individual­ ised basis. 1 Based on the New European Driving Cycle (NEDC) test procedure. With effect from September 2018, all vehicles in the EU are required to be approved in accordance with the new WLTP testing cycle. However, the EU Commis- sion will not start using WLTP to calculate fleet CO2 emissions until 2021. For this reason, WLTP fleet emissions must be retroactively calculated as NEDC values for the purposes of reporting up to and including 2020. 2 Taking into account the offset of certain flexibilities that are defined in the regulatory requirements (phase-in with 5 g / km, supercredits BEV / PHEV with 7.5 g / km and eco-innovations with 2.4 g / km). This is a preliminary internal calculation with a potential variation of ± 0.5 g CO2 / km, as official registration figures from the authori- ties are not available from all EU states. Officially published values by the EU Commission are not expected to be available until November 2021. The performance cash plan (PCP) included in the remuneration system for the financial years 2018 to 2020 serves as a long­term incentive. The PCP is paid out in cash after the end of the relevant three­year assessment period. BMW GroupReport 2020 Corporate Governance Remuneration Report Remuneration of the individual members of the Board of Management for the financial year 2020 (2019) ¹ 303 in € or number of matching shares Oliver Zipse Klaus Fröhlich 2 Ilka Horstmeier Milan Nedeljković Pieter Nota Nicolas Peter Frank Weber 3 Andreas Wendt Total 4 Fixed remuneration Variable cash remuneration Share-based remuneration component (matching component) ⁵ Sub-total Base salary Other remuneration Total Bonus Share-based remuneration component (investment component) Total Number Monetary value 1,800,000 (1,269,892) 475,000 (950,000) 800,000 (133,333) 800,000 (200,000) 800,000 (800,000) 950,000 (800,000) 400,000 (–) 800,000 (800,000) 66,256 (50,947) 56,546 (71,822) 87,374 (29,375) 101,973 (5,105) 18,408 (20,782) 24,231 (29,988) 28,593 (–) 56,319 (102,701) 1,866,256 1,688,760 759,942 2,448,702 (1,320,839) (1,404,380) (631,971) (2,036,351) 531,546 469,100 211,095 680,195 (1,021,822) (1,079,400) (485,730) (1,565,130) 887,374 (162,708) 901,973 (205,105) 818,408 (820,782) 974,231 (829,988) 428,593 (–) 856,319 (902,701) 797,470 (152,915) 797,470 (229,373) 797,470 (917,490) 938,200 (917,490) 398,735 (–) 797,470 (917,490) 358,862 (68,812) 358,862 1,156,332 (221,727) 1,156,332 (103,218) (332,591) 358,862 1,156,332 422,190 1,360,390 (412,871) (1,330,361) 179,431 578,166 (–) (–) 358,862 1,156,332 (412,871) (1,330,361) 6,825,000 439,700 7,264,700 6,684,675 3,008,106 9,692,781 (7,659,140) (496,271) (8,155,411) (8,697,280) (3,913,778) (12,611,058) 1,669 (1,725) 463 (1,135) 846 (173) 846 (280) 846 927 (965) 558 (–) 846 (1,036) 7,001 (9,728) 123,873 4,438,831 (103,037) (3,460,227) 34,364 (79,155) 62,790 (12,013) 62,790 (18,026) 62,790 (72,251) 68,802 (67,299) 31,360 (–) 62,790 (72,251) 1,246,105 (2,666,107) 2,106,496 (396,448) 2,121,095 (555,722) 2,037,530 (2,223,394) 2,403,423 (2,227,648) 1,038,119 (–) 2,075,441 (2,305,313) 509,559 17,467,040 (659,614) (21,426,083) (412,871) (1,330,361) (1,036) 1 Contains disclosures in accordance with HGB and the requirements of German Accounting Standard No. 17. 2 Member of the Board of Management until 30 June 2020. 3 Member of the Board of Management from 1 July 2020. 4 Disclosures for the previous year include amounts relating to members of the Board of Management who left office during the financial year 2019. 5 Preliminary number or preliminary monetary value calculated in accordance with German Financial Reporting Standard 17 (DRS 17). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. See note 41 to the Group Financial Statements for a description of the accounting treatment of the share-based remuneration component. BMW GroupReport 2020 Corporate Governance Remuneration Report 304 Remuneration in accordance with HGB and the require- ments of German Accounting Standard No. 17 The PCP 2018 – 2020 was awarded for the perfor­ mance of Board of Management members in the financial year 2018. The three­year assessment period for this re­ muneration component, which was subject to specified forfeiture provisions, expired on 31 December 2020. The earnings factors determined for each year of the assess­ ment period (financial year 2018: 1.520; financial year 2019: 0.798, financial year 2020: 0.444), give rise to a mul­ ti­year earnings factor of 0.921. The Supervisory Board set the multi­year performance factor at 1.0 for members of the Board of Management in office in financial year 2018, so that the PCP factor for the PCP 2018 – 2020 is 0.921. For the purposes of determining the multi­year performance factor, the Supervisory Board took account in particular of business development during the assess­ ment period, the outlook for business development going forward, the Board member’s individual contribution to profitability and the status of compliance within the Board member’s area of responsibility. When consider­ ing actual and forecasted business development for the relevant periods, the Supervisory Board paid particular attention to the development of certain key performance figures such as the number of deliveries, the EBIT margin and the return on capital employed. For the financial year 2020, the Supervisory Board took account of the impact of the coronavirus pandemic of these figures. It was not necessary to change the assessments relating to individual contributions to profitability or the status of compliance within Board members’ area of responsibility. In accordance with the requirements of HGB and German Accounting Standard No. 17, PCP­related re­ muneration is required to be included in the total remu­ neration figure for the financial year in which the plan’s conditions are fulfilled. The amount arising for the PCB 2018 – 2020 is therefore required to be included in the financial year 2020. The following tables show the remu­ neration of the members of the Board of Management in accordance with the requirements of HGB and applicable accounting standards for the financial year 2020 (2019) and in the financial year 2020 (2019) respectively. in € million Amount Proportion in % Amount Proportion in % 2020 2019 Fixed remuneration Variable cash remuneration 1 Share-based remuneration component 2 Total remuneration 7.3 13.0 0.5 20.8 34.9 62.6 2.5 100.00 8.1 12.6 0.7 21.4 37.8 58.9 3.3 100.0 1 Variable cash payments for the financial year 2020 also include a payment out of the PCP 2018 – 2020 for the 2018 grant year amounting to € 3.3 million. PCP 2018 – 2020 accounts for 16.0 % of total remuneration in accordance with HGB and the requirements of German Accounting Standard No. 17. 2 Matching component; provisional number / provisional monetary value calculated in accordance with DRS 17. The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. BMW GroupReport 2020 Corporate Governance Remuneration Report Remuneration in accordance with HGB and the requirements of German Accounting Standard No. 17 Total remuneration in accordance with HGB and the requirements of German Accounting Standard No. 17 Variable cash remuneration Sub-total as shown in the table Remuneration of the individual mem- bers of the Board of Management for the fi- nancial year 2020 (2019) ¹ Performance Cash Plan 2018 – 2020  ² Performance Cash Plan 2019 – 2021  ³ Performance Cash Plan 2020 – 2022 ⁴ 4,438,831 (3,460,227) 1,246,105 (2,666,107) 2,106,496 (396,448) 2,121,095 (555,722) 2,037,530 (2,223,394) 2,403,423 (2,227,648) 1,038,119 (–) 2,075,441 (2,305,313) 844,250 (–) 729,125 (–) (–) (–) (–) (–) 782,850 (–) 782,850 (–) (–) (–) 195,713 (–) 17,467,040 3,334,788 (21,426,083) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) 5,283,081 (3,460,227) 1,975,230 (2,666,107) 2,106,496 (396,448) 2,121,095 (555,722) 2,820,380 (2,223,394) 3,186,273 (2,227,648) 1,038,119 (–) 2,271,154 (2,305,313) 20,801,828 (21,426,083) in € Oliver Zipse Klaus Fröhlich 5 Ilka Horstmeier Milan Nedeljković Pieter Nota Nicolas Peter Frank Weber 6 Andreas Wendt Gesamt 7 1 Breakdown of remuneration for the financial year 2020 (2019) in the table Remuneration of the individual members of the Board of Management for the financial year 2020 (2019). 2 Amounts include an advance payment made in 2019 in line with contractually agreed arrangements. 3 PCP 2019 – 2021 will not be reported until the end of the three-year assessment period. 4 PCP 2020 – 2022 will not be reported until the end of the three-year assessment period. 5 Member of the Board of Management until 30 June 2020. In accordance with the requirements of the HGB, only the proportionate amount of the PCP 2018 – 2020 corresponding to the length of service of the Board member is reported. 6 Member of the Board of Management since 1 July 2020. 7 Disclosures for the previous year include amounts relating to members of the Board of Management who left office during the financial year 2019. 305 DEVELOPMENT OF BOARD OF MANAGEMENT REMU- NERATION FOR THE FINANCIAL YEARS 2016 TO 2020 IN ACCORDANCE WITH HGB ¹ in € million 50 25 0 37.6 40.3 24.0 21.4 20.8 2 3.3 17.5 2016 2017 2018 2019 2020 1 Total remuneration in accordance with HGB. 2 Total remuneration in accordance with HGB and the requirements of German Accounting Standard No. 17 for the financial year 2020 include the PCP 2018-2020, amounting to approximately € 3.3 million. Total remuneration for the financial year 2020 excluding the PCP 2018-2020 amounted to approximately € 17.5 million. In addition to the disclosures required by HGB and ap­ plicable accounting standards, the following tables – based on the model tables contained in the German Corporate Governance Code (GCCC) dated 7 February 2017 – show figures for amounts awarded as well as amounts paid to the individual members of the Board of Management. BMW GroupReport 2020 Corporate Governance Remuneration Report OLIVER ZIPSE Chairman of the Board of Management since 16 August 2019 Member of the Board of Management since 13 May 2015 306 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 1,800,000 1,800,000 1,800,000 1,269,892 1,800,000 1,269,892 Fringe benefits (other remuneration) 66,256 66,256 66,256 50,947 66,256 50,947 Total 1,866,256 1,866,256 1,866,256 1,320,839 1,866,256 1,320,839 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 540,000 0 972,000 390,323 239,760 311,477 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 1,260,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 3 PCP 2020 – 2022 – – 1,600,000 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 – 810,000 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 Other Total Pension expense 4 Total remuneration 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 An advance payment was made out of PCP 2018 – 2020. This was reported as an amount deemed received (Zufluss) for the financial year 2018 and paid out in 2019. 3 The advance payment out of PCP 2019 – 2021, which is reported deemed received (Zufluss) for the financial year 2019, was paid out in 2020. 4 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 5 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. – – – – – 123,873 – – 0 – – 0 – 0 – – – – – 0 – – 910,753 – 1,092,903 – – 1,449,000 277,584 – – 2,268,000 – – 1,194,624 2,880,000 – – – 712,900 – – 585,484 – 631,971 1,458,000 – – – – – 729,000 – – – – – 103,037 – – 759,942 33,423 – – – – – – – – – – – – – – 6,200,129 1,866,256 10,173,256 4,505,060 4,625,965 4,070,090 502,626 502,626 502,626 406,452 502,626 406,452 6,702,755 2,368,882 9,850,000 5 4,911,512 5,128,591 4,476,542 BMW GroupReport 2020 Corporate Governance Remuneration Report KLAUS FRÖHLICH Development Member of the Board of Management since 9 December 2014 until 30 June 2020 307 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 475,000 475,000 475,000 950,000 475,000 950,000 Fringe benefits (other remuneration) 56,546 56,546 56,546 71,822 56,546 71,822 Total 531,546 531,546 531,546 1,021,822 531,546 1,021,822 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 150,000 0 270,000 300,000 66,600 239,400 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 350,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 3 PCP 2020 – 2022 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 Share-based remuneration component (matching component) 2014 for holding obligation 2015 – 2019 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2024 Other Total Pension expense 4 Total remuneration 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid in 2021 and 2020 respectively. 2 An advance payment was made out of PCP 2018 – 2020. This was reported as an amount deemed received (Zufluss) for the financial year 2018 and paid out in 2019. The amount paid out of PCP 2018 – 2020 is allo- cated proportionately over the assessment period on the basis of period of time in office and as a former member of the Board of Management. 3 The advance payment out of PCP 2019 – 2021, which is reported deemed received (Zufluss) for the financial year 2019, was paid out in 2020. 4 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 5 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. – – 475,000 – 225,000 – – – – – – 34,364 – – 0 – – 0 – 0 – – – – – – 0 – – 700,000 – 840,000 – – 402,500 129,125 – – 630,000 – – 950,000 855,000 – – – 600,000 – – 450,000 – 485,730 405,000 – – – – – – 202,500 – – – – – – – 79,155 – – 211,095 – – 2,966 52,723 – – – – – – – – – – – – – 1,765,910 531,546 2,894,046 3,500,977 1,393,589 3,189,918 175,000 175,000 175,000 353,327 175,000 353,327 1,940,910 706,546 2,750,000 5 3,854,304 1,568,589 3,543,245 BMW GroupReport 2020 Corporate Governance Remuneration Report 308 ILKA HORSTMEIER Human Resources, Industrial Relations Director Member of the Board of Management since 1 November 2019 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 800,000 800,000 800,000 133,333 800,000 133,333 Fringe benefits (other remuneration) 87,374 87,374 87,374 29,375 87,374 29,375 Total 887,374 887,374 887,374 162,708 887,374 162,708 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 255,000 0 459,000 42,500 113,220 33,915 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 PCP 2019 – 2021 PCP 2020 – 2022 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 3 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Other Total Pension expense 2 Total remuneration – – 850,000 – 382,500 – 62,790 – – 0 – – 0 – 0 – 0 – – 99,167 – 119,000 1,071,000 – – – – 141,667 1,530,000 – – 63,750 684,250 – – – – – 0 – 68,812 688,500 – 358,862 – 12,013 344,500 – – – – – – – – – – 3,032,664 887,374 4,980,374 521,805 2,043,706 384,435 352,433 352,433 352,433 58,333 352,433 58,333 3,385,097 1,239,807 4,925,000 3 580,138 2,396,139 442,768 BMW GroupReport 2020 Corporate Governance Remuneration Report MILAN NEDELJKOVIĆ Production Member of the Board of Management since 1 October 2019 309 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 800,000 800,000 800,000 200,000 800,000 200,000 Fringe benefits (other remuneration) 101,973 101,973 101,973 5,105 101,973 5,105 Total 901,973 901,973 901,973 205,105 901,973 205,105 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 255,000 0 459,000 63,750 113,220 50,873 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 PCP 2019 – 2021 PCP 2020 – 2022 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 3 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Other Total Pension expense 2 Total remuneration – – 850,000 – 382,500 – 62,790 – – 0 – – 0 – 0 – 0 – – – – – 1,071,000 148,750 684,250 178,500 – – – 212,500 1,530,000 – – – – – 0 – – 95,625 – 103,218 688,500 – 358,862 – 18,026 344,500 – – – – – – – – – – 3,047,263 901,973 4,994,973 743,756 2,058,305 537,696 352,121 352,121 352,121 87,500 352,121 87,500 3,339,384 1,254,094 4,925,000 3 831,256 2,410,426 625,196 BMW GroupReport 2020 Corporate Governance Remuneration Report PIETER NOTA Customer, Brands, Sales Member of the Board of Management since 1 January 2018 310 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 800,000 800,000 800,000 800,000 800,000 800,000 Fringe benefits (other remuneration) 18,408 18,408 18,408 20,782 18,408 20,782 Total 818,408 818,408 818,408 820,782 818,408 820,782 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 255,000 0 459,000 255,000 113,220 203,490 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 3 PCP 2020 – 2022 – – 850,000 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 – – 0 – – 0 – – 595,000 – 714,000 1,071,000 – 684,250 – – 850,000 – 282,850 1,530,000 – – – 500,000 – – – – 382,500 – 412,871 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 382,500 0 688,500 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 An advance payment was made out of PCP 2018 – 2020. This was reported as an amount deemed received (Zufluss) for the financial year 2018 and paid out in 2019. 3 The advance payment out of PCP 2019 – 2021, which is reported deemed received (Zufluss) for the financial year 2019, was paid out in 2020. 4 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 5 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 Other Total Pension expense 4 Total remuneration – – 62,790 – – – 0 – – – 344,500 – – – 72,251 – – 358,862 – – – – – – – – – 2,963,698 818,408 4,911,408 2,975,533 2,257,590 2,651,143 354,680 354,680 354,680 359,979 354,680 359,979 3,318,378 1,173,088 4,925,000 5 3,335,512 2,612,270 3,011,122 BMW GroupReport 2020 Corporate Governance Remuneration Report NICOLAS PETER Finance Member of the Board of Management since 1 January 2017 311 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 950,000 950,000 950,000 800,000 950,000 800,000 Fringe benefits (other remuneration) 24,231 24,231 24,231 29,988 24,231 29,988 Total 974,231 974,231 974,231 829,988 974,231 829,988 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 300,000 0 540,000 255,000 133,200 203,490 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 700,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 3 PCP 2020 – 2022 – – 950,000 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 – – 0 – – 0 – – 595,000 – 714,000 1,260,000 – 805,000 – – 850,000 – 282,850 1,710,000 – – – 500,000 – – – – 382,500 – 412,871 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 450,000 0 810,000 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 Other Total Pension expense 4 Total remuneration 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 An advance payment was made out of PCP 2018 – 2020. This was reported as an amount deemed received (Zufluss) for the financial year 2018 and paid out in 2019. 3 The advance payment out of PCP 2019 – 2021, which is reported deemed received (Zufluss) for the financial year 2019, was paid out in 2020. 4 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 5 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. – – – 68,802 – – – – 0 – – – – 405,000 – – – – 67,299 – – 422,190 – – – – – – – – – – – 3,443,033 974,231 5,699,231 2,979,787 2,617,471 2,660,349 351,746 351,746 351,746 353,327 351,746 353,327 3,794,779 1,325,977 5,500,000 5 3,333,114 2,969,217 3,013,676 BMW GroupReport 2020 Corporate Governance Remuneration Report FRANK WEBER Development Member of the Board of Management since 1 July 2020 in € BASE SALARY Fixed remuneration Fringe benefits (other remuneration) Total ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 312 FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 400,000 400,000 400,000 28,593 28,593 28,593 428,593 428,593 428,593 – – – 400,000 28,593 428,593 127,500 0 229,500 – 56,610 Performance component of the bonus 2019 (three-year plan term) – Performance component of the bonus 2020 (three-year plan term) 1 297,500 Performance Cash Plan PCP 2018 – 2020 PCP 2019 – 2021 PCP 2020 – 2022 – – 425,000 Aktienbasiertes Vergütungsprogramm Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 – Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 191,250 – 0 – – 0 – 0 0 – – 535,500 – – 765,000 – 344,250 172,125 – – – – – – – – – – – 342,125 – – – – 179,431 – – Share-based remuneration component (matching component) 2020 for holding obligation 2021 – 2025 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial 2020 will be paid out in 2021. 2 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 3 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Other Total Pension expense 2 Total remuneration 31,360 – 1,501,203 428,593 2,474,968 175,000 175,000 175,000 – 1,006,759 – 175,000 1,676,203 603,593 2,462,500 3 – 1,181,759 – – – – – – – – – – – – – – – – BMW GroupReport 2020 Corporate Governance Remuneration Report ANDREAS WENDT Purchasing and Supplier Network Member of the Board of Management since 1 October 2018 313 in € BASE SALARY Fixed remuneration FJ 2020 FJ 2020 (Min) FJ 2020 (Max) FJ 2019 FJ 2020 FJ 2019 Grants Payout 800,000 800,000 800,000 800,000 800,000 800,000 Fringe benefits (other remuneration) 56,319 56,319 56,319 102,701 56,319 102,701 Total 856,319 856,319 856,319 902,701 856,319 902,701 ONE-YEAR VARIABLE REMUNERATION Earnings-based component of the bonus 1 MULTI-YEAR VARIABLE REMUNERATION Performance component of the bonus 255,000 0 459,000 255,000 113,220 203,490 Performance component of the bonus 2019 (three-year plan term) 1 – Performance component of the bonus 2020 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 PCP 2019 – 2021 PCP 2020 – 2022 – – 850,000 Share-based remuneration programme Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 – – 0 – – 0 – – 595,000 – 714,000 1,071,000 – 684,250 – – 850,000 – 195,713 – – 1,530,000 – – – – – – 382,500 – 412,871 Cash remuneration component (investment component) 2020 for holding obligation 2021 – 2025 1 382,500 0 688,500 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Share-based remuneration component (matching component) 2020 for holding obligation 2020 – 2025 1 The bonus components and cash remuneration component reported in accordance with the GCCC for the financial years 2020 and 2019 will be, or were, paid out in 2021 and 2020 respectively. 2 The pension expense in accordance with IAS 19 reflects the expense recognised by the BMW Group; this amount was not paid out in the financial year. 3 Agreed maximum amount. The overall cap in absolute terms is lower than the sum of the maximum amounts for the individual components. Other Total Pension expense 2 Gesamtvergütung – – 62,790 – – – 0 – – – 344,500 – – – 72,251 – – 358,862 – – – – – – – – – 3,001,609 856,319 4,949,319 3,057,452 2,208,364 2,233,062 351,746 351,746 351,746 353,327 351,746 353,327 3,353,355 1,208,065 4,925,000 3 3,410,779 2,560,110 2,586,389 BMW GroupReport 2020 Corporate Governance Remuneration Report Share ownership The members of the Board of Management hold a to­ tal of 59,341 shares of BMW common stock (2019: 92,519) which they are required to hold in accordance with the terms of the share­based remuneration programme for the financial years 2016 – 2019. The cash component of the share­based remuneration programme for the financial year 2020 will be paid out after the end of the Annual General Meeting 2021, triggering the requirement to purchase additional shares of BMW common stock. Shares of BMW common stock held by individual members of the Board of Management subject to holding requirements in connection with share-based remuneration for the financial years 2016 – 2019 ¹ Shares of stock Oliver Zipse Klaus Fröhlich 2 Ilka Horstmeier Milan Nedeljković Pieter Nota Nicolas Peter Frank Weber 3 Andreas Wendt Total 1 Includes only shares of BMW common stock acquired using the cash remuneration component of the share-based remuneration programme for members of the Board of Management, for which the four-year holding period has not yet expired. 2 Member of the Board of Management until 30 June 2020. 3 Member of the Board of Management from 1 July 2020. 4 Disclosures for the previous year include shares held by members of the Board of Management who left office during the financial year 2019. 314 Total ¹ 16,637 (11,938) 15,304 (13,305) 782 (–) 1,174 (–) 8,650 (3,954) 11,110 (6,736) – (–) 5,684 (988) 59,341 (92,519)4 BMW GroupReport 2020 315 Corporate Governance Remuneration Report Share-based remuneration component (matching component) for individual members of the Board of Management for the financial year 2020 (2019) ¹ in € Oliver Zipse Klaus Fröhlich 2 Ilka Horstmeier Milan Nedeljković Pieter Nota Nicolas Peter Frank Weber 3 Andreas Wendt Total 4 1 Value at the end of the reporting period calculated on the basis of the closing price of BMW common stock in Xetra trading on 30 December 2020 (€ 72.23). 2 Member of the Board of Management until 30 June 2020. 3 Member of the Board of Management from 1 July 2020. 4 Disclosures for the previous year include amounts relating to members of the Board of Management who left office during the financial year 2019. Expense in 2020 in accordance with HGB and IFRS Provision at 31. 12. 2020 in accordance with HGB and IFRS1 73,882 (135,272) 98,458 (104,384) 28,258 (668) 32,561 (1,516) 168,949 (76,736) 63,765 (150,428) 6,773 (–) 98,843 (34,672) 398,503 (358,043) 401,743 (356,008) 28,925 (668) 34,078 (1,516) 269,346 (100,397) 295,180 (231,415) 398,503 (–) 135,147 (36,304) 571,489 1,961,425 (957,504) (2,456,758) BMW GroupReport 2020 Corporate Governance Remuneration Report 316 In addition, an expense of € 2.6 million (2019: € 2.9 million) was recognised in the financial year 2020 for current members of the Board of Management for the period after the end of their service relationship. This re­ lates to the expense for allocations to pension provisions in accordance with IAS 19. Total benefits paid to former members of the Board of Management and their surviving dependants for the financial year 2020 amounted to € 13.1 million (2019: € 16.0 million). The total remuneration of former mem­ bers of the Board of Management also includes the amounts described above amounting to € 0.6 million arising in connection with the departure of Mr. Fröhlich. Some of these amounts have not yet been paid out. Pension obligations to former members of the Board of Management and their surviving dependants are fully covered by pension provisions amounting to € 118.8 mil­ lion (2019: € 113.1 million), computed in accordance with IAS 19. Pension entitlements in € Oliver Zipse Klaus Fröhlich 2 Ilka Horstmeier Milan Nedeljković Pieter Nota Nicolas Peter Frank Weber 3 Andreas Wendt Total 4 Service cost in accordance with IFRS for the financial year 2020 ¹ Service cost in accordance with HGB for the financial year 2020 ¹ Defined benefit obligation IFRS ¹ Defined benefit obligation HGB ¹ 502,626 (406,452) 175,000 (353,327) 352,433 (58,333) 352,121 (87,500) 354,680 (359,979) 351,746 (353,327) 175,000 (–) 351,746 (353,327) 506,861 3,701,016 3,700,982 (406,452) (3,054,273) (3,054,125) 175,000 3,556,660 3,556,660 (355,573) (3,256,267) (3,256,267) 355,375 (58,333) 355,076 (87,500) 1,391,936 1,391,331 (993,548) (992,662) 1,830,168 1,829,906 (1,421,605) (1,421,152) 357,593 1,157,145 1,156,993 (362,125) (760,562) (760,306) 354,711 3,134,163 3,134,163 (355,573) (2,656,550) (2,656,550) 175,000 655,460 655,172 (–) (–) (–) 354,711 2,863,441 2,863,441 (355,573) (2,414,082) (2,414,082) 2,615,352 2,634,327 18,289,989 18,288,648 (2,876,116) (2,890,450) (27,962,636) (27,960,893) 1 Service cost differs due to the different valuation bases used to measure the present value of defined benefit pension obligations for IFRS purposes and the expected settlement amount for HGB purposes. 2 Member of the Board of Management until 30 June 2020. 3 Member of the Board of Management since 1 July 2020. 4 Disclosures for the previous year include amounts relating to members of the Board of Management who left office during the financial year 2019. BMW GroupReport 2020 Corporate Governance Remuneration Report Revision of Board of Management remuneration for financial years from 2021 onwards During the financial year 2020, the Supervisory Board considered in detail the new requirements for Board of Management remuneration resulting from the Act Im­ plementing the Second EU Shareholder Rights Directive (ARUG II) as well as the recommendations and sugges­ tions contained in the German Corporate Governance Code (GCCC) dated December 16, 2019. At its meeting in December 2020, the Supervisory Board, acting on the recommendation of the Personnel Committee, resolved to revise the existing system of Board of Management remuneration for financial years from 2021 onwards. In its deliberations, the Supervisory Board also took into account the recommendations of an independent remuneration expert as well as suggestions from investor representatives and analysts. In agreement with the mem­ bers of the Board of Management in office at that time, the relevant service contracts were amended with effect from 1 January 2021, in order to implement changes to the remuneration system for financial years from 2021 onwards for all Board members at the same time. 317 recommendation of the GCCC in the version dated 16 December 2019. In order to simplify the remu­ neration system, the matching component that was previously paid out in cash or shares at the end of the four­year holding period no longer applies. As in the past, the company awards a so­called “personal cash investment amount”, which is required to be used – after tax and deductions – to acquire shares of BMW common stock. Compared to the previous arrangements, the personal cash investment amount will have a significantly higher weighting within the target structure, given that it replaces the PCP as a long­term incentive. Within the target structure, one half of the personal cash investment amount will be linked to the attainment of an RoCE target for the Automotive segment and one half to the attainment of strategic focus targets set by the Supervisory Board in accordance with corporate planning. — The members of the Board of Management are re­ quired to hold the BMW common stock acquired with the personal cash investment amount on a long­term basis, i. e. at least for a period of four years. — In the new remuneration system, the payment of var­ iable remuneration components is subject to special malus and clawback clauses. The Supervisory Board will submit the new system for Board of Management remuneration to the 2021 Annual General Meeting for approval. The new remu­ neration system will be explained in detail in the notice document inviting shareholders to the Annual General Meeting. Key features of the new remuneration system include in particular: — The new remuneration system for members of the Board of Management is designed to be simple, clear and easy to understand. It complies with the requirements of the German Stock Corporation Act (AktG) and the recommendations and suggestions of the GCCC for executive board remuneration. — Under the new remuneration system, variable, earnings­related remuneration will be oriented even more closely towards the company’s sustainable de­ velopment. Non­financial targets, particularly in the areas of the environment (e. g. reduction of carbon emissions), social issues and governance are taken into account appropriately. — The Performance Cash Plan will no longer apply in the future, resulting in a simplification of the remu­ neration system. — In future, most of the variable remuneration of the Board of Management will be determined using a share­based approach, in compliance with the BMW GroupReport 2020 Corporate Governance Remuneration Report 318 Outlook: Remuneration elements, parameters, target remuneration levels and caps for financial years from financial year 2021 onwards Component BASE SALARY VARIABLE REMUNERATION Bonus (sum of earnings component and performance component) a) Earnings component (at 100 % target achievement corresponds to 50 % of target amount) Parameters / measurement base, applicable amounts Member of the Board of Management: — € 0.90 million p. a. (first period of office) — € 1.05 million p. a.(from second period of office or fourth year of mandate) Chairman of the Board of Management: — € 1.95 million p. a. — Monthly payment on time-apportioned basis — Target amount p. a. (at 100 % target achievement): — € 0.95 million (first period of office) — € 1.15 million (from second period of office or fourth year of mandate) — € 2.1 million (Chairman of the Board of Management) — Capped at 180 % of target amount — Payment after the Annual General Meeting at which the Company Financial Statements are presented for the relevant financial year — Assessment period one year — Base amount p. a. (50 % of target bonus amount): — € 0.475 million (first period of office) — € 0.575 million (from second period of office or fourth year of mandate) — € 1.050 million (Chairman of the Board of Management) — Formula: 50 % of target amount x performance factor — Earnings factor is derived from an allocation table based on the parameters profit attributable to shareholders of BMW AG and Group post-tax return on sales in grant year — Allocation table is determined in advance — The earnings factor is 1.0 in case of a profit attributable to shareholders of BMW AG amounting to € 5.3 billion and a post-tax return on sales of 5.6 % — The earnings factor is 1.5 in case of a profit attributable to shareholders of BMW AG amounting to € 6.9 billion and a post-tax return on sales of 7.3 % — The earnings factor is 0 in case of a profit attributable to shareholders of BMW AG below € 3.0 billion or a post- tax return on sales of below 3.0 % — Earnings factor may not exceed 1.8 — Maximum amount of earnings component p. a.: — € 0.855 million (first period of office) — € 1.035 million (from second period of office or fourth year of mandate) — € 1.890 million (Chairman of the Board of Management) BMW GroupReport 2020 Corporate Governance Remuneration Report Component b) Performance component (at 100 % target achievement corresponds to 50 % of target amount) 319 Parameters / measurement base, applicable amounts — Assessment period one year — Base amount p. a. (50 % of target bonus amount): — € 0.475 million (first period of office) — € 0.575 million (from second period of office or fourth year of mandate) — € 1.050 million (Chairman of the Board of Management) — Formula: 50 % of target amount x performance factor — Primarily qualitative, non-financial criteria, expressed in terms of a performance factor, aimed at measuring the Board member’s contribution to sustainable and long-term performance and corporate orientation — Additional trend analysis over at least three financial years to assess the impact of past decisions and actions in the grant year as well as the impact of decisions and actions in the grant year on future financial years — Composition of the performance factor within target structure — 10 % individual targets — 50 % cross-divisional targets with ESG criteria — 40 % other cross-divisional targets — Criteria for the cross-divisional targets with ESG criteria include in particular: innovation performance ( environmental, e. g. reduction of carbon emissions), development of the BMW Group's reputation based on ESG aspects (e. g. corporate culture, promotion of integrity and compliance), adaptability, attractiveness as an employ- er, leadership performance — Criteria for the other cross-divisional targets include in particular: market position compared to competitors, inno- vation performance (economic), development of the BMW Group's reputation based on non-ESG-related aspects (e. g. perception on capital markets, brand strength), customer orientation — Measurement parameters and target values are determined before the start of the financial year — Performance factor may not exceed 1.8 — Maximum amount of performance component p. a.: — € 0.855 million (first period of office) — € 1.035 million (from second period of office or fourth year of mandate) — € 1.890 million (Chairman of the Board of Management) Performance Cash Plan Not applicable BMW GroupReport 2020 Corporate Governance Remuneration Report 320 Component Parameters / measurement base, applicable amounts Share-based remuneration programme with holding requirements a) Personal cash investment amount aa) RoCE component (at 100 % target achievement corresponds to 50 % of target amount) bb) Strategic focus target component (at 100 % target achievement corresponds to 50 % of target amounts) — Requirement for Board of Management members to invest an earmarked cash amount (personal cash investment amount), net of tax and deductions, in shares of BMW common stock — Requirement for Board of Management members to hold the acquired shares of BMW common stock for at least four years (share ownership) — Assessment period of five years in total (one year for determining the personal cash investment amount, four years holding requirement) — Target amount p. a. (at 100 % target achievement): — € 1.10 million (first period of office) — € 1.28 million (from second period of office or fourth year of mandate) — € 2.35 million (Chairman of the Board of Management) — 50 % of target amount depends on RoCE achieved in the Automotive segment (RoCE component) — 50 % of the target amount depends on the achievement of predefined strategic focus targets (strategic focus target component) — Capped at 180 % of target amount — Payment after the Annual General Meeting at which the Company Financial Statements are presented for the relevant financial year — Target amount of RoCE component p. a. (50 % of target amount for personal cash investment amount): — € 0.55 million (first period of office) — € 0.64 million (from second period of office or fourth year of mandate) — € 1.175 million (Chairman of the Board of Management) — Formula: 50 % of target amount x RoCE factor — RoCE factor is derived from the RoCE achieved in the Automotive segment for the grant year — Minimum, target and maximum values for RoCE are defined before the start of the financial year — RoCE factor may not exceed 1.8 — Strategic focus target component p. a. (50 % of target amount for personal cash investment amount): — € 0.55 million (first period of office) — € 0.64 million (from second period of office or fourth year of mandate) — € 1.175 million (Chairman of the Board of Management) — At least two strategic focus targets of a non-financial nature derived from strategic plan and business forecast — Weighting of the strategic focus targets is decided upon before the start of the financial year — Formula in the case of two strategic focus targets with equal weighting p. a.: 25 % of target amount for personal cash investment amount x factor for strategic focus target 1 + 25 % of target amount for personal cash investment amount x factor for strategic focus target 2 — Minimum, target and maximum values for each focus target are defined before the start of the financial year — Factor for each strategic focus target may not exceed 1.8 b) Share-based remuneration component (matching component) Not applicable BMW GroupReport 2020 Corporate Governance Remuneration Report 321 Component Parameters / measurement base, applicable amounts RULES FOR WITHHOLDING AND CLAWING BACK REMUNERATION a) Malus a) Clawback OTHER FIXED REMUNERATION (FRINGE BENEFITS) REIIMBURSEMENT OF LOSSES AND EXPENSES — Agreement to withhold variable remuneration in the event of specified serious compliance violations or ( withholding amounts provisionally) in the event of reasonable suspicions of such — Amounts may also be withheld in principle after a member has left the Board — Applies from financial year 2021 onwards — Agreement entitling the BMW Group to reclaim variable remuneration already paid out in the event of specified seri- ous incidences of non-compliance, incorrect calculation bases for remuneration or incorrect financial statements — Amounts may also be clawed back in principle after a member has left the Board — Applies from financial year 2021 onwards Contractual agreement, main points: non-cash benefits from the use of company cars and the BMW chauffeur service, insurance premiums, contributions towards security systems, employee discounts The Supervisory Board may award payments to compensate for loss of salary from a previous employment relationship and to cover relocation costs in the case of new entrants. These payments are to be included for the purposes of deter- mining the maximum remuneration RETIREMENT BENEFITS Model Principal features Defined contribution system with a guaranteed minimum return Benefits based on amounts credited to individual savings accounts for contributions paid and interest earned, various forms of disbursement Pension contribution p. a.: Member of the Board of Management: € 400,000 Chairman of the Board of Management: € 700,000 CAPS p. a. in € Member of the Board of Management in the first period of office Member of the Board of Management from second period of office or fourth year of mandate Chairman of the Board of Management * Maximum remuneration as defined in section 87a (1) sentence 2 no. 1 AktG. The overall cap is lower than the sum of the maximum amounts for the individual components. Bonus Share-based remuneration (personal investment cash amount) Maximum remuneration * 1,710,000 2,070,000 3,780,000 1,980,000 2,304,000 4,230,000 4,925,000 5,500,000 9,850,000 BMW GroupReport 2020 Corporate Governance Remuneration Report 2. Supervisory Board remuneration Provisions of Articles of Incorporation, procedures The remuneration regulation valid for the financial year under report was resolved by shareholders at the Annual General Meeting on 14 May 2020 and is set out in Article 15 of BMW AG’s Articles of Incorporation. With effect from the financial year 2020, members of the Supervisory Board are remunerated exclusively on the basis of a fixed remuneration structure. In accordance with the Act Implementing the Second EU Shareholder Rights Directive (ARUG II), a resolution on the remu­ neration of the members of the Supervisory Board is required to be adopted by the Annual General Meeting of a listed stock corporation at least every four years. A proposal will be submitted to the Annual General Meet­ ing on 12 May 2021 to confirm the existing remuneration arrangements. Remuneration principles, remuneration components The exclusively fixed remuneration structure for Su­ pervisory Board remuneration is intended to strengthen the independent exercise of its control and advisory functions and complies with Suggestion G.18 of the German Corporate Governance Code (GCCC) dated 16 December 2019. In accordance with the Articles of Incorporation, each member of the Supervisory Board of BMW AG who does not perform any additional re­ muneration­relevant functions receives – in addition to reimbursement of reasonable expenses – a fixed remuneration of € 200,000, payable after the end of the financial year. The latest version of the GCCC dated 16 Decem­ ber 2019 recommends that the exercising of chair and deputy chair positions in the Supervisory Board as well 322 the chair and membership of committees should also be considered when determining the level of remuneration (Recommendation G.17) due to the higher time con­ sumption. Accordingly, the Articles of Incorporation of BMW AG stipulate that the Chairman of the Supervisory Board shall receive three times the amount and each Dep­ uty Chairman twice the amount of remuneration paid to a Supervisory Board member, excluding amounts relat­ ing to additional remuneration­relevant functions. The chair of the Audit Committee receives two­and­a­quarter times the amount, the chair of other Supervisory Board committees twice the amount and each member of a committee one­and­a­half times the amount of the remu­ neration paid to a Supervisory Board member, provided the relevant committee convened on at least three days during the financial year. If a member of the Supervisory Board exercises more than one of the functions referred to above, their remuneration is measured only on the basis of the function receiving the highest amount. In the event of changes in the composition of the Super­ visory Board during the year or in the performance of additional remuneration­relevant functions, remunera­ tion is determined on a proportion ate basis. In addition, each member of the Supervisory Board receives an attendance fee of € 2,000 for each full meeting of the Supervisory Board (Plenum) which the member has attended, payable at the end of the financial year. Attendance at more than one meeting on the same day is not remunerated separately. Furthermore, the Company reimburses each member of the Supervisory Board for their reasonable expenses. In order to be able to perform his duties, the Chair­ man of the Supervisory Board is provided with secretar­ iat and chauffeur services. Overview of remuneration ¹ Member of the Supervisory Board Chairman of the Supervisory Board Deputy Chairman of the Supervisory Board Chairman of the Audit Committee 2 Chairman of another committee 2 Member of the Audit Committee 2 Member of another committee 2 Factor Amount in € p. a.  ³ 1.00 3.00 2.00 2.25 2.00 2.00 1.50 200,000 600,000 400,000 450,000 400,000 400,000 300,000 1 If a Supervisory Board member performs several additional remuneration-relevant functions, their remuneration remuneration is measured only on the basis of the function that is remunerated with the highest amount. 2 Provided the relevant committee convened for meetings on at least three days during the financial year. 3 Plus attendance fee of € 2,000 per plenary session. BMW GroupReport 2020 323 Corporate Governance Remuneration Report Remuneration of the Supervisory Board for the financial year 2020 (total) In accordance with Article 15 of the Articles of Incor­ poration, the remuneration of the Supervisory Board for activities during the financial year 2020 totalled € 5.6 mil­ lion (2019: € 5.6 million). in € million Fixed remuneration Variable remuneration Total remuneration 2020 2019 Amount Proportion in % Amount Proportion in % 5.6 – 5.6 100.0 – 100.0 2.0 3.6 5.6 35.7 64.3 100.0 Supervisory Board members did not receive any fur­ ther remuneration or benefits from the BMW Group for advisory or agency services personally rendered. BMW GroupReport 2020 Corporate Governance Remuneration Report Remuneration of the individual members of the Supervisory Board for the financial year 2020 (2019) in € Norbert Reithofer (Chairman) Manfred Schoch (Deputy Chairman) 1 Stefan Quandt (Deputy Chairman) Stefan Schmid (Deputy Chairman) 1 Karl-Ludwig Kley (Deputy Chairman) 2 Kurt Bock (Chairman of the Audit Committee) 3 Christiane Benner 1 Verena zu Dohna-Jaeger 1 Heinrich Hiesinger Reinhard Hüttl 4 Susanne Klatten Renate Köcher 5 324 Total 610,000 (640,000) 410,000 (430,000) 410,000 (430,000) 410,000 (430,000) 428,548 (428,000) 367,930 (220,000) 210,000 (220,000) 210,000 (139,532) 210,000 (220,000) 200,000 (200,000) 210,000 (220,000) 76,194 Fixed remuneration Attendance fee Variable remuneration ⁸ 600,000 (210,000) 400,000 (140,000) 400,000 (140,000) 400,000 (140,000) 418,548 (140,000) 357,930 (70,000) 200,000 (70,000) 200,000 (43,844) 200,000 (70,000) 190,000 (70,000) 200,000 (70,000) 74,194 (70,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (8,000) 10,000 (10,000) 10,000 (10,000) 10,000 (8,000) 10,000 – (420,000) – (280,000) – (280,000) – (280,000) – (280,000) – (140,000) – (140,000) – (87,688) – (10,000) (140,000) 10,000 (8,000) 10,000 (10,000) 2,000 (10,000) – (122,000) – (140,000) – (140,000) (220,000) BMW GroupReport 2020 Corporate Governance Remuneration Report Remuneration of the individual members of the Supervisory Board for the financial year 2020 (2019) in € Horst Lischka 1 Willibald Löw 1 Simone Menne Dominique Mohabeer 1 Brigitte Rödig 1 Anke Schäferkordt 6 Vishal Sikka Thomas Wittig Werner Zierer 1 Total 7 325 3. Other With exception of the advance payments relating to the PCP 2019 – 2021 described above, neither BMW AG nor any of its subsidiaries granted loans or advances to members of the Board of Management or the Supervisory Board during the financial year 2020, nor were any con­ tingent liabilities entered into in their favour. During the year under report, members of the Board of Management and the Supervisory Board concluded vehicle purchase, service, rental, leasing and financing contracts for vehi­ cles on customary market terms and conditions. Total 210,000 (220,000) 210,000 (220,000) 210,000 (220,000) 210,000 (220,000) 210,000 (220,000) 134,344 (–) 208,000 (139,532) 210,000 (139,532) 210,000 (220,000) Fixed remuneration Attendance fee Variable remuneration 8 200,000 (70,000) 200,000 (70,000) 200,000 (70,000) 200,000 (70,000) 200,000 (70,000) 126,344 (–) 200,000 (43,844) 200,000 (43,844) 200,000 (70,000) 5,367,016 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 8,000 (–) 8,000 (8,000) 10,000 (8,000) 10,000 (10,000) 198,000 – (140,000) – (140,000) – (140,000) – (140,000) – (140,000) – (–) – (87,688) – (87,688) – (140,000) 1 In line with the guidelines of the Deutscher Gewerkschaftsbund, these employee representatives have requested that their remuneration be paid into the Hans Böckler-Stiftung. 2 Chairman of the Audit Committee until 14 May 2020. 3 Chairman of the Audit Committee since 14 May 2020. 4 Due to the requirements of his employer, Prof. Dr. Hüttl has waived his Supervisory Board remuneration until further notice, to the extent that this would exceed the amount of € 200,000 p. a. 5 Member of the Supervisory Board until 14 May 2020. 6 Member of the Supervisory Board since 14 May 2020. 7 Figures for the previous year include the remuneration of members of the Supervisory Board who left office during the financial year 2019. 8 Earnings-related remuneration for the financial year 2019 was capped at the maximum amount. (1,820,564) (196,000) (3,623,128) (5,639,692) – 5,565,016 BMW GroupReport 2020 Corporate Governance Glossary and Explanation of Key Figures GLOSSARY AND EXPLANATION OF KEY FIGURES ASSET-BACKED FINANCING TRANSACTIONS A form of corporate financing involving the sale of receivables to a financing company. BOND CAPITAL EXPENDITURE RATIO CARBON EMISSIONS OF THE NEW VEHICLE FLEET 326 Investments in property, plant and equipment and other intangible assets (excluding capitalised develop­ ment costs) as a percentage of Group revenues. CAPITALISATION RATE Capitalised development costs as a percentage of research and development expenditure. CASH FLOW Liquid funds generated (cash inflows) or used (cash outflows) during a reporting period. The average carbon emissions of a manufacturer’s fleet are calculated on the basis of the weighted average of carbon emissions across all vehicles newly registered during the reporting period. New registrations for these purposes comprise all newly registered vehicles of a given manufacturer in the EU, including Norway and Iceland, during the calendar year, plus any individual vehicle­spe­ cific carbon emissions determined in accordance with the WLTP type test procedure and converted back to the New European Driving Cycle (NEDC). The BMW Group’s fleet carbon emissions figure for 2020, as measured internally, includes legally permitted offsetting factors (i. e. phase-in, supercredits and eco­innovations). In accordance with legal requirements, the forecast of fleet carbon emissions for 2021 is based on WLTP and includes lower offsetting factors, as phase­in is no longer permitted for 2021 and the BMW Group fully utilised the maximum amount of supercredits in 2020. For better comparability of the fleet carbon emissions forecast for 2021 and the actual figure for the fleet in 2020, the latter has been converted internally from NEDC (including offsetting factors) to a WLTP basis (excluding offsetting factors). The figure derived for 2020 serves only to reconcile it with the 2021 figure; it is not official in nature and does not correspond to legislation that was in place in 2020. A securitised debt instrument in which the issuer certifies its obligation to repay the nominal amount at the end of a fixed term and to pay a fixed or variable rate of interest. CASH FLOW AT RISK BUSINESS VOLUME IN BALANCE SHEET TERMS Similar to “value at risk” (see definition below). The sum of the balance sheet line items “Leased prod­ ucts” and “Receivables from sales financing” (current and non­current), as reported in the balance sheet for the Financial Services segment. CASH FLOW HEDGE A hedge against exposures to the variability in forecasted cash flows, particularly in connection with exchange rate fluctuations. BMW GroupReport 2020 Corporate Governance Glossary and Explanation of Key Figures COMMERCIAL PAPER Short­term debt instruments with a term of less than one year which are usually issued at a discount to their face value. CONSOLIDATION The process of combining separate financial state­ ments of Group entities into Group Financial Statements, depicting the financial position, net assets and results of operations of the Group as a single economic entity. CREDIT DEFAULT SWAP (CDS) Financial swap agreements, under which creditors of securities (usually bonds) pay premiums to the seller of the CDS to hedge against the risk that the issuer of the bond will default. As with credit default insurance agreements, the party receiving the premiums gives a commitment to compensate the bond creditor in the event of default. 327 Services and – in the US and Canada – dealers when they designate a vehicle as a service loaner or demonstrator vehicle. In the case of used vehicles, end users may in­ clude dealers and other third parties when they purchase a vehicle at auction or directly from BMW Group. Vehi­ cles designated for the end user and suffering total loss in transit will also be recorded as deliveries. Deliveries may be made by BMW AG, one of its international subsidiar­ ies, a BMW Group retail outlet, or independent dealers. The vast majority of deliveries – and hence the reporting to BMW Group of deliveries – is made by independent dealers. EBIT MARGIN Profit / loss before financial result as a percentage of revenues. EBT EBIT plus financial result. EARNINGS PER SHARE (EPS) EFFECTIVE TAX RATE Basic earnings per share are calculated for common and preferred stock by dividing the net profit after mi­ nority interests, as attributable to each category of stock, by the average number of shares in circulation. Earnings per share of preferred stock are computed on the basis of the number of preferred stock shares entitled to receive a dividend in each of the relevant financial years. EBIT The effective tax rate is calculated by dividing the income tax expense by the Group profit before tax. ELECTRIFIED VEHICLES The BMW Group uses the terms Battery Electric Ve­ hicle (BEV) to denote fully electric vehicles and Plug­in Hybrid Vehicle (PHEV) to denote vehicles that can be charged and also driven on a fully electric basis. DELIVERIES A new or used vehicle will be recorded as a delivery once handed over to the end user. End users also include leaseholders under lease contracts with BMW Financial Abbreviation for “Earnings Before Interest and Taxes”, equivalent in the BMW Group income statement to “Profit / loss before financial result”. This is comprised of revenues less cost of sales, selling and administrative expenses and the net amount of other operating income and expenses. BMW GroupReport 2020 Corporate Governance Glossary and Explanation of Key Figures 328 EMPLOYEES FAIR VALUE HEDGE LIQUIDITY The number of employees includes BMW AG and all companies in which it holds a majority interest, irrespec­ tive of whether they are consolidated in the Group Finan­ cial Statements. The figure does not include employees in dormant employment relationships, those in the non­ work phase of partial retirement working arrangements and low­wage earners. With effect from the financial year 2020, the definition also includes employees with permanent and fixed­term contracts. Up to 2019, it also included temporary staff, postgraduate students, interns, apprentices, those on extended sick leave and sabbaticals. EQUITY RATIO Equity capital as a percentage of the balance sheet total. FAIR VALUE The amount at the measurement date for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length trans­ action. A hedge against exposures to fluctuations in the fair Cash and cash equivalents as well as marketable value of a balance sheet item. securities and investment funds. FREE CASH FLOW OUTLOOK Free cash flow is derived from cash flows from operating and investing activities. The cash flows from investing activities from the purchase and sale of mar­ ketable securities and investment funds is not included. Cash flows from the purchase and sale of shares and the dividend payout from investments accounted for using the equity method are included in the cash flows from investing activities. GOODWILL Goodwill corresponds to the consideration paid to acquire an entity, less the fair value of the separate assets acquired and liabilities assumed. The buyer is willing to pay the additional amount in return for future expected earnings. The BMW Group uses the following terminology and ranges when forecasting key performance indicators: At previous year’s level Slight increase Slight decrease Solid increase Moderate decrease Significant increase Significant decrease [– 0.9 % / + 0.9 %] [+ 1.0 % / + 4.9 %] [– 1.0 % / – 4.9 %] [+ 5.0 % / + 9.9 %] [– 5.0 % / – 9.9 %] >+ 10.0 % >– 10.0 % Unlike the other key performance indicators, the RoCE forecast for the Automotive and Motorcycles seg­ ments is based on the change in percentage points: At previous year’s level Slight increase Slight decrease Solid increase Moderate decrease Significant increase Significant decrease [– 0.9 %-pts. / + 0.9 %-pts.] [+ 1.0 %-pts. / + 4.9 %-pts.] [– 1.0 %-pts. / – 4.9 %-pts.] [+ 5.0 %-pts. / + 9.9 %-pts.] [– 5.0 %-pts. / – 9.9 %-pts.] >+ 10.0 %-pts. >– 10.0 %-pts. GROSS PROFIT MARGIN Gross profit as a percentage of Group revenues. BMW GroupReport 2020 Corporate Governance Glossary and Explanation of Key Figures 329 POST-TAX RETURN ON SALES RESEARCH AND DEVELOPMENT LOCATIONS TRAINING AND FURTHER EDUCATION Group net profit as a percentage of Group revenues. PRE-TAX RETURN ON SALES The engineering, IT and process expertise required for the (pre­)development of hardware and software for all BMW Group products and services is combined at the Group’s international research and development locations. Expenditure for training comprises all costs incurred in the year under report for vocational training within the BMW Group in a total of seven countries, including personnel costs for trainers and apprentices as well as other costs and investments related to vocational training. Group profit / loss before tax as a percentage of Group revenues. RETURN ON CAPITAL EMPLOYED (ROCE) RESEARCH AND DEVELOPMENT EXPENDITURE The sum of research and non­capitalised development cost and capitalised development cost (not including the associated scheduled amortisation). RoCE in the Automotive and Motorcycles segments is measured on the basis of relevant segment profit be­ fore financial result and the average amount of capital employed – at the end of the last five quarters – in the segment concerned. Capital employed corresponds to the sum of all current and non­current operational assets, less liabilities that generally do not incur interest. RESEARCH AND DEVELOPMENT EXPENDITURE RATIO RETURN ON EQUITY (ROE) Research and development expenditure as a percent­ age of Group revenues. RoE in the Financial Services segment is calculated as segment profit before taxes, divided by the average amount of equity capital – at the end of the last five quarters – attributable to the Financial Services segment. The number of apprentices undergoing training with­ in the BMW Group includes those employed at domestic and international plants in a total of seven countries as well as those working in corporate functions, at Group plants in Germany and international sales companies as well as in the Financial Services segment. Expenditure for further education includes all costs incurred by the BMW Group’s consolidated companies in connection with ongoing and advanced training. This includes preparation and implementation costs, oppor­ tunity costs and investments made in order to provide such training. Costs also include notional depreciation, measured on the basis of asset inventory lists. VALUE AT RISK A measure of the potential maximum loss in value of an item during a set time period, based on a specified probability. BMW GroupReport 2020 Corporate Governance Responsibility Statement by the Company’s Legal Representatives 330 RESPONSIBILITY STATEMENT BY THE COMPANY’S LEGAL REPRESENTATIVES STATEMENT PURSUANT TO § 117 NO.1 OF THE SECURITIES TRADING ACT (WPHG) IN CONJUNCTION WITH § 297 (2) SENTENCE 4 AND § 315 (1) SENTENCE 5 OF THE GERMAN COMMERCIAL CODE (HGB) Munich, 9 March 2021 Bayerische Motoren Werke Aktiengesellschaft “To the best of our knowledge, and in accordance with the applicable reporting principles, the Group Fi­ nancial Statements give a true and fair view of the assets, liabilities, financial position and results of operations of the Group, and the Group Management Report includes a fair review of the development and performance of business and position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.” THE BOARD OF MANAGEMENT OLIVER ZIPSE ILKA HORSTMEIER DR. MILAN NEDELJKOVIĆ PIETER NOTA DR. NICOLAS PETER FRANK WEBER DR.-ING. ANDREAS WENDT BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report The following copy of the auditor’s report also includes a “Report on the audit of the electronic renderings of the financial state- ments and the management report prepared for disclosure pur- poses in accordance with § 317 Abs. 3b HGB” (“Separate report on ESEF conformity”). The subject matter (ESEF documents) to which the Separate report on ESEF conformity relates is not attached. The audited ESEF documents can be inspected in or retrieved from the Federal Gazette. INDEPENDENT AUDITOR’S REPORT TO BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT, MUNICH REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE GROUP MANAGEMENT REPORT 331 Audit Opinions We have audited the consolidated financial state­ ments of Bayerische Motoren Werke Aktiengesellschaft, Munich, and its subsidiaries (the Group), which comprise the BMW Group Income Statement for Group, Statement of Comprehensive Income for Group, BMW Group Balance Sheet at 31 December 2020, BMW Group Cash Flow State­ ment for BMW Group and BMW Group Statement of Chang­ es in Equity for the financial year from January 1 to Decem­ ber 31, 2020, and Notes to the Group Financial Statements, including a summary of significant accounting policies. In addition, we have audited the group management report of Bayerische Motoren Werke Aktiengesellschaft, which is combined with the Company’s management report, for the financial year from January 1 to December 31, 2020. In accordance with the German legal requirements, we have not audited the content of those parts of the group management report listed in the “Other Information” section of our auditor’s report. In our opinion, on the basis of the knowledge obtained in the audit, — the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2020, and of its financial performance for the financial year from January 1 to December 31, 2020, and — the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group man­ agement report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the oppor­ tunities and risks of future development. Our audit opinion on the group management report does not cover the content of those parts of the group manage­ ment report listed in the “Other Information” section of our auditor’s report. Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated fi­ nancial statements and of the group management report. Basis for the Audit Opinions We conducted our audit of the consolidated financial statements and of the group management report in ac­ cordance with § 317 HGB and the EU Audit Regulation (No. 537 / 2014, referred to subsequently as “EU Audit Regulation”) in compliance with German Generally Ac­ cepted Standards for Financial Statement Audits prom­ ulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further de­ scribed in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German com­ mercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non­audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group management report. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report 332 Key Audit Matters in the Audit of the Consolidated Financial Statements Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the fi­ nancial year from January 1 to December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. Our presentation of these key audit matters has been structured in each case as follows: 1 Matter and issue 2 Audit approach and findings 3 Reference to further information Hereinafter we present the key audit matters: In our view, the matters of most significance in our 1 Measurement of leased products audit were as follows: 1 Measurement of leased products 2 Valuation of receivables from sales financing 3 Valuation of provisions for statutory and non-statutory warranty obligations and product guarantees 4 Measurement of YOUR NOW equity investment 5 Measurement of provision for risks relating to an EU antitrust proceeding 1 The BMW Group leases vehicles to end customers under operating leases (leased products). At the bal­ ance sheet date, the figure reported under the “leased products” line item for operating leases was EUR 41,995 million (approximately 19.4 % of total assets). Leased products are measured at cost, which is de­ preciated on a straight­line basis over the lease term to the expected residual value (recoverable amount). A key estimated value for subsequent measurement of leased products is the expected residual value at the end of the lease term. The BMW Group uses in­ ternally available data on historical empirical values, current market data and market estimates as well as forecasts by external market research institutes. The estimation of future residual values is subject to judgment due to the large number of assumptions to be made by the executive directors and the amount of data included in the determination. Against this background and due to the resulting significant uncertainties with regard to estimates in the context of measuring the residual values of the leased products, this matter was of particular signif­ icance in the context of our audit. 2 As part of our audit we obtained an understanding of the development of operating leases, the underlying residual value risks as well as the business processes for the identification, management, monitoring and measurement of residual value risks, among other things by inquiries and inspection of documents related to the internal calculation methods. Fur­ thermore, we evaluated the appropriateness and effectiveness of the internal control system, par­ ticularly regarding the determination of expected residual values. This included the evaluation of the propriety of the relevant IT systems as well as the implemented interfaces therein by our IT specialists. In addition, we evaluated the appropriateness of the forecasting methods, the model assumptions as well as the parameters used for the measurement of the residual values based on the validations carried out by the BMW Group. For this purpose, we inquired with the BMW Group’s experts responsible for the management and monitoring of residual value risks and inspected the internal analysis on residual value developments and residual value forecasts as well as the validation results. We examined the mathemati­ cally correctness of the forecast values using the key calculation steps. Based on our audit procedures, we were able to satisfy ourselves that the methods and processes for determining the expected residual values of leased products underlying the valuation are appropriate and the assumptions and parameters included in the forecast model for the residual value are appropriate as a whole. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report 333 3 The Company’s disclosures on the applied “Account­ ing policies, assumptions, judgments and estimations” are contained in the notes to the consolidated finan­ cial statements under note 5 and on leased products are contained under note 23. 2 Valuation of receivables from sales financing 1 The BMW Group offers end customers, dealerships and importers various financing models for vehicles. In this context, current and non­current receivables from sales financing totaling EUR 84,277 million are reported in the consolidated statement of financial position as at the balance sheet date ( approximately EUR 38.9 % of total assets). Impairment losses amounting to EUR 1,639 million were recognized on these receivables as at the balance sheet date. In order to determine the amount of the necessary valuation allowances to be recognized with respect to receivables from sales financing, the BMW Group, among others, evaluates the creditworthiness of the dealers, importers and end customers, as well as any loss ratios, and risk provisioning parameters are derived based on historical default probabilities and loss ratios. The determination of the valuation allowances by the executive directors is subject to a significant degree of judgment due to several value­influencing factors such as the estimation of creditworthiness, the de­ termination of probabilities of default and loss ratios and was therefore of particular significance in the context of our audit. 2 As part of our audit we obtained a comprehensive understanding of the development of receivables from sales financing, the associated default­related risks as well as the business processes for the identi­ fication, management, monitoring and measurement of default risks , among other things by inquiries and inspection of documents on the internal cal­ culation methods. Furthermore, we evaluated the appropriateness and effectiveness of the internal control system regarding the determination of the impairment loss to recognize. In this context, we also evaluated the relevant IT systems and internal pro­ cesses. The evaluation included an assessment by our IT specialists of the appropriateness of the systems concerned and associated interfaces to ensure the completeness of data as well as the audit of auto­ mated controls for data processing. As part of our audit we assessed in particular the appropriateness of the risk classification procedures as well as the risk provisioning parameters used. For this purpose, we analyzed in particular the validations of parameters that are regularly conducted by the Company. To as­ sess the default risk, we also used targeted sampling of individual cases to examine whether the attributes for assignment to the respective risk categories were suitably available and the impairment losses had been calculated using the parameters defined for these risk categories. In our view, the assumptions and parameters used in the measurement of receivables from sales financing were appropriate overall. 3 The Company’s disclosures on the applied “Account­ ing policies, assumptions, judgments and estima­ tions” are contained in the notes to the consolidated financial statements under note 5 and on “receivables from sales financing” are contained under note 25. 3 Valuation of provisions for statutory and non-statuto- ry warranty obligations and product guarantees 1 Provisions for statutory and non­statutory warranty obligations as well as product guarantees are in­ cluded in the consolidated financial statements of BMW Group as a material amount in other provi­ sions. The obligations amounted to EUR 6,131 mil­ lion (approximately 2.8 % of total assets) as at De­ cember 31, 2020. BMW Group is responsible for the legally required warranty and product guarantees in the respective sales market. In order to estimate the liabilities arising from statutory and non­statutory warranty obligations and product guarantees for vehicles sold, information on the type and volume of damages arising and on remedial measures is recorded and analyzed at vehicle model level. The expected amount of obligations is extrapolated from costs of the past and recognized as a provision in the corresponding amount, if the criteria of IAS 37 have been met. For specific or anticipated individual circumstances, for example recalls, additional provi­ sions are recognized provided they have not already been taken into account. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report The determination of provisions is associated with unavoidable estimation uncertainties and is subject to a high risk of change, depending on factors such as notification of detected defects as well as claims made by vehicle owners. Against this background, this matter was of particular significance during our audit. 2 In order to assess the appropriateness of the val­ uation method used for the determination of the provisions for statutory and non­statutory warranty obligations as well as product guarantees including the assumptions and parameters, we primarily ob­ tained an understanding of the process for deter­ mining the assumptions and parameters through discussions with the responsible employees of the BMW Group. We also evaluated the appropriateness as well as effectiveness of controls for determining the assumptions and parameters. With the involve­ ment of our IT specialists, we checked the IT systems used regarding their compliance. We compared the expenses for claims and technical actions with ac­ tual costs incurred in order to draw conclusions on the forecast accuracy. Based on a targeted sample of vehicle models, the mathematically correctness of the valuation model used across the Group was examined. We examined and evaluated the assump­ tions used by the BMW Group concerning the extent to which the past values were representative of the expected susceptibility of damage, the expected value of damage per vehicle (comprising parts and labor input) as well as the expected assertion of claims from statutory and non­statutory warranties. In our view, the method for the valuation of provi­ sions for statutory and non­statutory warranty obli­ gations as well as product guarantees is overall ap­ propriate. Taking into consideration the information 334 available, we believe that, overall, the measurement parameters and assumptions used by the executive directors are appropriate. uncertainties. Against this background, this matter was of particular significance during our audit. 3 The Company’s disclosures on the applied “Account­ ing policies, assumptions, judgments and estima­ tions” are contained in the notes to the consolidated financial statements under note 5 and on “Other provisions” are contained under note 33. 4 Measurement of YOUR NOW equity investment 1 In the BMW Group’s consolidated financial state­ ments as at December 31, 2020, the YOUR NOW equity investment is reported under the balance sheet item “Investments accounted for using the equity method” with a carrying amount of EUR 591 million (approximately 0.3 % of total assets). The BMW Group and a competitor have bundled mobility services within YOUR NOW. In the financial year 2020 YOUR NOW generated negative operating earnings amounting to EUR 349 million, which were recognized in the consolidated financial statements. Furthermore, there was a triggering event at the level of the BMW Group. The Company has identified as a triggering event in particular a significant deviation from target figures and the impacts of the coronavi­ rus crisis regarding the YOUR NOW equity invest­ ment. As a result of the impairment test performed, no further write­downs were necessary as at balance sheet date. The measurement of the YOUR NOW equity invest­ ment, including the performance of the impairment test, depends to a significant degree on the estimates made by the executive directors and their exercise of judgment, which are subject to significant estimation 2 As part of our audit, we examined and evaluated the methodological procedure adopted for the purposes of measuring the YOUR NOW equity investment as well as for performing the impairment test, among other things. We also assessed the appropriateness of the valuation parameters and assumptions on which the measurement was based. We examined the impairment test conducted by the BMW Group based on the occurrence of a triggering event. After comparing the future cash inflows used in the calcu­ lation against the underlying budget, we assessed the appropriateness of the calculation, in particular by reconciling it with general and sectorspecific market expectations. Moreover, we evaluated the estimates made by the executive directors with respect to the impacts of the coronavirus crisis on the YOUR NOW equity investment and examined its consideration in the calculation of future cash inflows. We also as­ sessed the parameters used to determine the discount rate applied and examined the measurement model. The valuation parameters and assumptions used by the executive directors are overall in line with our ex­ pectations and are also within the ranges considered by us to be acceptable. 3 The Company’s disclosures on the applied “Account­ ing policies, assumptions, judgments and estimations” are contained in the notes to the consolidated finan­ cial statements under note 5 and on the YOUR NOW equity investment are contained under note 24. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report 5 Measurement of provision for risks relating to an EU antitrust proceeding 1 In April 2019, the BMW Group was notified by the European Commission of complaints in a pending antitrust proceeding. The European Commission accuses various manufacturers of colluding to re­ strict competition in the field of innovation. In this connection, as in the previous year, a EUR 1.4 billion provision for litigation and risk provisioning was rec­ ognized at the balance sheet date in the consolidated financial statements under the balance sheet item “Other provisions”. The risk assessment to be made on developments in the EU antitrust proceeding and the estimation of whether or not a provision must be recognized to cover the risks, and if so, in what amount the current obligation must be measured, is subject to a high degree of uncertainties and charac­ terized by the estimates and assumptions made by the executive directors. In our view, this matter was of particular significance for our audit due to the significant uncertainties con­ cerning the outcome of the EU antitrust proceeding and the potential effects on BMW AG’s assets, liabil­ ities, financial position and financial performance. 2 With the knowledge that estimated values result in an increased risk of accounting misstatements and that the executive directors’ recognition and measure­ ment decisions have a direct effect on consolidated result, we evaluated the retention of the carrying amounts, with the involvement of an internal PwC antitrust law expert. Furthermore, we also held reg­ ular meetings with the Company’s legal department in order to receive updates on current developments and the reasons for the corresponding estimates. The 335 development of the aforementioned risks arising from the EU antitrust proceeding, including the executive directors’ estimates concerning the poten­ tial proceeding outcomes, was provided to us by the Company in writing. In addition, we obtained and evaluated an external legal confirmation as at the balance sheet date. In our view, the estimates made by the executive di­ rectors regarding the recognition and measurement of the provision for the risks from the EU antitrust proceeding described above and the associated risk provision in the consolidated financial statements are sufficiently documented and substantiated. — the disclosures marked with “╚ ... ╝” of the non­finan­ cial statement pursuant to § 289 b Abs. 1 HGB and § 315 d Abs. 1 HGB The other information comprises further the remain­ ing parts of the annual report – excluding cross­referenc­ es to external information – with the exception of the audited consolidated financial statements, the audited group management report and our auditor’s report. Our audit opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. 3 The Company’s disclosures on the applied “Account­ ing policies, assumptions, judgments and estima­ tions” are contained in the notes to the consolidated financial statements under note 5 and on “Other operating expenses” are contained under note 10. Other Information The executive directors are responsible for the other information. The other information comprises the follow­ ing non­audited parts of the group management report: — the statement on corporate governance pursuant to § 289 f HGB and § 315 d HGB included in section “Corporate Governance” of the group management report — the subsections “Information on the Company’s Governing Constitution”, “Board of Management”, “Supervisory Board”, “Shareholders and Annual General Meeting” and “Declaration of Compliance” listed in the “Corporate Governance” section of the group management report BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report 336 In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information — is materially inconsistent with the consolidated finan­ cial statements, with the group management report or our knowledge obtained in the audit, or — otherwise appears to be materially misstated. Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315 e Abs. 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial perfor­ mance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of con­ solidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have con­ sidered necessary to enable the preparation of a group management report that is in accordance with the ap­ plicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. The supervisory board is responsible for overseeing the Group’s financial reporting process for the prepara­ tion of the consolidated financial statements and of the group management report. Auditor’s Responsibilities for the Audit of the Consoli- dated Financial Statements and of the Group Manage- ment Report Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is con­ sistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the group management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regulation and in com­ pliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a mate­ rial misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report. We exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures respon­ sive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collu­ sion, forgery, intentional omissions, misrepresenta­ tions, or the override of internal controls. — Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of express­ ing an audit opinion on the effectiveness of these systems. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report — Evaluate the appropriateness of accounting policies used by the executive directors and the reasonable­ ness of estimates made by the executive directors and related dislosures. — Conclude on the appropriateness of the executive di­ rectors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. — Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consol­ idated financial statements present the underlying transactions and events in a manner that the con­ solidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315 e Abs. 1 HGB. — Obtain sufficient appropriate audit evidence re­ garding the financial information of the entities or business activities within the Group to express audit opinions on the consolidated financial state­ ments and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions. — Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides. — Perform audit procedures on the prospective infor­ mation presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospec­ tive information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. 337 We communicate with those charged with govern­ ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the relevant in­ dependence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are there­ fore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. BMW GroupReport 2020 Corporate Governance Independent Auditor’s Report 338 OTHER LEGAL AND REGULATORY REQUIREMENTS Assurance Report in Accordance with § 317 Abs. 3b HGB on the Electronic Reproduction of the Consolidated Financial Statements and the Group Management Report Prepared for Publication Purposes Reasonable Assurance Conclusion We have performed an assurance engagement in ac­ cordance with § 317 Abs. 3b HGB to obtain reasonable assurance about whether the reproduction of the consol­ idated financial statements and the group management report (hereinafter the “ESEF documents”) contained in the attached electronic file BMW_AG_KA+KLB_ESEF- 2020­12­31.zip and prepared for publication purposes complies in all material respects with the requirements of § 328 Abs. 1 HGB for the electronic reporting format (“ESEF format”). In accordance with German legal re­ quirements, this assurance engagement only extends to the conversion of the information contained in the consolidated financial statements and the group man­ agement report into the ESEF format and therefore relates neither to the information contained within this reproduction nor to any other information contained in the above­mentioned electronic file. In our opinion, the reproduction of the consolidated financial statements and the group management report contained in the above­mentioned attached electronic file and prepared for publication purposes complies in all material respects with the requirements of § 328 Abs. 1 HGB for the electronic reporting format. We do not express any opinion on the information contained in this reproduction nor on any other information con­ tained in the above­mentioned electronic file beyond this reasonable assurance conclusion and our audit opinion on the accompanying consolidated financial statements and the accompanying group management report for the financial year from 1 January to 31 December 2020 con­ tained in the “Report on the Audit of the Consolidated Financial Statements and on the Group Management Report” above. Basis for the Reasonable Assurance Conclusion We conducted our assurance engagement on the reproduction of the consolidated financial statements and the group management report contained in the above­mentioned attached electronic file in accordance with § 317 Abs. 3b HGB and the Exposure Draft of IDW Assurance Standard: Assurance in Accordance with § 317 Abs. 3b HGB on the Electronic Reproduction of Financial Statements and Management Reports Prepared for Publi­ cation Purposes (ED IDW AsS 410) and the International Standard on Assurance Engagements 3000 (Revised). Accordingly, our responsibilities are further described below in the “Group Auditor’s Responsibilities for the Assurance Engagement on the ESEF Documents” section. Our audit firm has applied the IDW Standard on Quality Management: Requirements for Quality Management in the Audit Firm (IDW QS 1). Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents The executive directors of the Company are re­ sponsible for the preparation of the ESEF documents including the electronic reproduction of the consolidated financial statements and the group management report in accordance with § 328 Abs. 1 Satz 4 Nr. 1 HGB and for the tagging of the consolidated financial statements in accordance with § 328 Abs. 1 Satz 4 Nr. 2 HGB. In addition, the executive directors of the Company are responsible for such internal control as they have considered necessary to enable the preparation of ESEF documents that are free from material non­compliance with the requirements of § 328 Abs. 1 HGB for the elec­ tronic reporting format, whether due to fraud or error. The executive directors of the Company are also responsible for the submission of the ESEF documents together with the auditor’s report and the attached audited consolidated financial statements and audited group management report as well as other documents to be published to the operator of the German Federal Gazette [Bundesanzeiger]. The supervisory board is responsible for overseeing the preparation of the ESEF documents as part of the financial reporting process. Group Auditor’s Responsibilities for the Assurance Engagement on the ESEF Documents Our objective is to obtain reasonable assurance about whether the ESEF documents are free from material non­compliance with the requirements of § 328 Abs. 1 HGB, whether due to fraud or error. We exercise pro­ fessional judgment and maintain professional skepticism throughout the assurance engagement. We also: — Identify and assess the risks of material non­com­ pliance with the requirements of § 328 Abs. 1 HGB, whether due to fraud or error, design and perform assurance procedures responsive to those risks, and obtain assurance evidence that is sufficient and appropriate to provide a basis for our assurance conclusion. BMW GroupReport 2020 339 FURTHER INFORMATION PURSUANT TO ARTICLE 10 OF THE EU AUDIT REGULATION GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT We were elected as group auditor by the annual general meeting on May 14, 2020. We were engaged by the supervisory board on June 17, 2020. We have been the group auditor of the Bayerische Motoren Werke Ak­ tiengesellschaft, Munich, without interruption since the financial year 2019. We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long­form audit report). The German Public Auditor responsible for the engagement is Andreas Fell. Munich, 10 March 2021 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft PETRA JUSTENHOVEN Wirtschaftsprüferin [German public auditor] ANDREAS FELL Wirtschaftsprüfer [German public auditor] Corporate Governance Independent Practitioners Report — Obtain an understanding of internal control relevant to the assurance engagement on the ESEF documents in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing an assurance conclusion on the effectiveness of these controls. — Evaluate the technical validity of the ESEF documents, i. e., whether the electronic file containing the ESEF documents meets the requirements of the Delegated Regulation (EU) 2019 / 815 in the version applicable as at the balance sheet date on the technical specifi­ cation for this electronic file. — Evaluate whether the ESEF documents enables a XHTML reproduction with content equivalent to the audited consolidated financial statements and to the audited group management report. — Evaluate whether the tagging of the ESEF documents with Inline XBRL technology (iXBRL) enables an appropriate and complete machine­readable XBRL copy of the XHTML reproduction. BMW GroupReport 2020 Corporate Governance Independent Practitioners Report INDEPENDENT PRACTITIONER’S REPORT INDEPENDENT PRACTITIONER’S REPORT ON A LIMITED ASSURANCE ENGAGEMENT ON DISCLOSURES ON NON-FINANCIAL REPORTING AND SUSTAINABILITY DISCLOSURES ¹ 1 PricewaterhouseCoopers GmbH has performed a limited assurance engagement on the German version of the „BMW Group Report 2020“ and issued an independent practitioner’s report in German language, which is authoritative. The following text is a translation of the independent practitioner’s report. 340 To BMW AG, Munich We have performed a limited assurance engagement on the disclosures in the „BMW Group Report 2020“ for the period from 1 January to 31 December 2020 (herein­ after the “Integrated Group Report”) of BMW AG, Mu­ nich, (hereinafter the “Company”) denoted with “╚ ... ╝” of the combined non­financial statement pursuant to §§ (Articles) 289b (paragraph) Abs. 1 and 315b Abs. 1 HGB (“Handelsgesetzbuch”: “German Commercial Code”), which is integrated into the combined management report (hereinafter the “Disclosures on Non­financial Reporting”) contained in the Integrated Group Report, as well as the sustainability disclosures contained in the sections “Dialog with Stakeholders” and “Further GRI Information” of the Integrated Group Report (hereinafter referred to as “Sustainability Disclosures”). Our engage­ ment in this context relates solely to the disclosures denoted with the symbol “╚ ... ╝” and the disclosures in the sections “Dialog with Stakeholders” and “Further GRI Information”. Responsibilities of the Executive Directors The executive directors of the Company are respon­ sible for the preparation of the combined non­financial statement in accordance with §§ 315 c in conjunction with 289c to 289e HGB and the Sustainability Disclo­ sures in accordance with the principles stated in the Sus­ tainability Reporting Standards of the Global Reporting Initiative (hereinafter the “GRI­Criteria”). This responsibility of Company’s executive directors includes the selection and application of appropriate methods of non­financial reporting and sustainability reporting as well as making assumptions and estimates related to individual non­financial disclosures and sustainability disclosures which are reasonable in the circumstances. Furthermore, the executive directors are responsible for such internal control as they have consid­ ered necessary to enable the preparation of an Integrated Group Report that is free from material misstatement whether due to fraud or error. Independence and Quality Control of the Audit Firm We have complied with the German professional pro­ visions regarding independence as well as other ethical requirements. Our audit firm applies the national legal require­ ments and professional standards – in particular the Professional Code for German Public Auditors and Ger­ man Chartered Auditors (“Berufssatzung für Wirtschafts­ prüfer und vereidigte Buchprüfer“: “BS WP / vBP”) as well as the Standard on Quality Control 1 published by the Institut der Wirtschaftsprüfer (Institute of Public Audi­ tors in Germany; IDW): Requirements to quality control for audit firms (IDW Qualitätssicherungsstandard 1: An­ forderungen an die Qualitätssicherung in der Wirtschaft­ sprüferpraxis – IDW QS 1) – and accordingly maintains a comprehensive system of quality control including doc­ umented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. BMW GroupReport 2020 Corporate Governance Independent Practitioners Report Practitioner´s Responsibility Our responsibility is to express a limited assurance conclusion on the Disclosures on Non­financial Report­ ing denoted with the symbol “╚ ... ╝” of the combined non­financial statement and the Sustainability Disclo­ sures in the sections “Dialog with Stakeholders” and “Further GRI Information” of the Integrated Group Report based on the assurance engagement we have performed. Within the scope of our engagement we did not perform an audit on external sources of information or expert opinions, referred to in the Integrated Group Report. We conducted our assurance engagement in accord­ ance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised): Assurance Engage­ ments other than Audits or Reviews of Historical Finan­ cial Information, issued by the IAASB. This Standard requires that we plan and perform the assurance en­ gagement to allow us to conclude with limited assurance that nothing has come to our attention that causes us to believe that — the Disclosures on Non­financial Reporting denoted with the symbol “╚ ... ╝” of the Company’s com­ bined non­financial statement pursuant to §§ 289 b Abs. 1 and 315b Abs. 1 HGB for the period from 1 January to 31 December 2020, which is integrated into the combined management report contained in the Integrated Group Report, have not been prepared, in all material aspects, in accordance with the re­ quirements of §§ 315 c in conjunction with 289c to 289e HGB relevant to these disclosures, or 341 — the Sustainability Disclosures in the sections “Dialog with Stakeholders” and “Further GRI Information” of the Company’s Integrated Group Report for the period from 1 January to 31 December 2020 have not been prepared, in all material aspects, in accordance with the relevant GRI­Criteria. — Inquiries of the employees responsible for the in­ formation on fleet emissions and fuel consumption contained in the Integrated Group Report and recon­ ciliation of individual data on fleet emissions and fuel consumption with the technical vehicle data — Evaluation of the presentation of the disclosures In a limited assurance engagement the assurance pro­ cedures are less in extent than for a reasonable assurance engagement, and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the practitioner’s judgment. Within the scope of our assurance engagement, we performed amongst others the following assurance pro­ cedures and further activities: — Obtaining an understanding of the structure of the sustainability organization and of the stakeholder engagement — Inquiries of personnel involved in the preparation of the Integrated Group Report regarding the prepara­ tion process, the internal control system relating to this process and selected disclosures in the Integrat­ ed Group Report — Identification of the likely risks of material misstate­ ment of the Integrated Group Report — Testing of processes for the collection, control, anal­ ysis and aggregation of selected data from various Group sites on a sample basis — Analytical evaluation of selected disclosures in the Integrated Group Report BMW GroupReport 2020 Corporate Governance Independent Practitioners Report 342 Assurance Conclusion Intended Use of the Assurance Report Based on the assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes us to believe that — the Disclosures on Non­financial Reporting denoted with the symbol “╚ ... ╝” of the Company’s combined non­financial statement pursuant to §§ 289 b Abs. 1 and 315b Abs. 1 HGB for the period from 1 January to 31 December 2020, which is integrated into the combined management report contained in the In­ tegrated Group Report, have not been prepared, in all material aspects, in accordance with the require­ ments of §§ 315 c in conjunction with 289c to 289e HGB relevant to these disclosures, or — the Sustainability Disclosures in the sections “Dialog with Stakeholders” and “Further GRI Information” of the Company’s Integrated Group Report for the period from 1 January to 31 December 2020 have not been prepared, in all material aspects, in accordance with the relevant GRI­Criteria. We issue this report on the basis of the engagement agreed with the Company. The assurance engagement has been performed for purposes of the Company and the report is solely intended to inform the Company about the results of the limited assurance engagement. The report is not intended for any third parties to base any (financial) decision thereon. Our responsibil­ ity lies only with the Company. We do not assume any responsibility towards third parties. Munich, 10 March 2021 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft ANDREAS FELL Wirtschaftsprüfer [German public auditor] NICOLETTE BEHNCKE Wirtschaftsprüferin [German public auditor] BMW GroupReport 2020 Other Information 343 OTHER INFORMATION 344 344 352 357 359 363 364 365 367 368 Further GRI Information Production, Purchasing and Supplier Network Employees and Society Reporting Concept TCFD-Index NFE-Index BMW Group Fuel Consumption and CO₂ Emissions Information BMW Group Ten-year Comparison Financial Calendar Contacts BMW GroupReport 2020 Other Information Further GRI Information FURTHER GRI INFORMATION PRODUCTION, PURCHASING AND SUPPLIER NETWORK 344 BMW GROUP CO2 FOOTPRINT in t CO₂ / CO₂e Total emissions 1 2016 2017 2018 2019 2020 70,818,970 72,850,7242 74,213,4023 75,987,119 65,828,005 SCOPE 1: DIRECT GREENHOUSE GAS EMISSIONS Total emissions Emissions of BMW Group locations 4 Emissions of company vehicles 5 Emissions of company-owned planes SCOPE 2: INDIRECT GREENHOUSE GAS EMISSIONS Total emissions Electricity / heat purchased by BMW Group locations 4, 7 SCOPE 3: INDIRECT GREENHOUSE GAS EMISSIONS Total emissions Emissions of logistics Emissions of business trips 9 Emissions of employees’ commuter traffic 10 Emissions of upstream chain 11 Emissions of utilisation phase 12 Emissions of disposal 11 562,146 472,021 85,008 5,117 625,072 529,728 88,782 6,562 581,703 487,249 88,272 6,182 642,259 550,494 85,667 6,098 642,885 568,538 72,554 1,793 6 868,089 868,089 510,911 510,911 538,622 538,622 302,574 302,574 84,257 84,257 69,388,735 71,714,7412 73,093,0773 75,042,286 65,100,863 1,427,399 1,497,0752 1,563,919 1,570,397 1,322,8598 142,250 139,797 169,233 140,187 159,039 136,608 129,646 146,298 25,217 6 166,586 15,391,154 16,786,192 17,221,109 18,505,921 16,234,959 51,079,073 51,887,708 52,759,5673 53,421,006 46,200,385 1,185,148 1,234,346 1,252,835 1,269,018 1,150,857 1 The emissions listed account for approximately 90 % of the BMW Group’s total Scope 1 to Scope 3 emissions. Scope 1 and Scope 2 emissions exclude climate-changing gases other than carbon dioxide. 2 Due to new input data from an external service provider, the figures for 2017 were adjusted. 3 Figure not directly comparable to previous years’ figures. Calculated using EU fleet emissions according to NEDC correlated. Using NEDC correlated values in 2017 would result in a value of 52,933,132 t of CO2. This is equivalent to a reduction of absolute emissions by 0.3 % in 2018. 4 Emissions from BMW Group-owned production sites including BMW Motorrad Berlin as well as administration, development and central distribution centres. VDA factors (updated in June 2019) used since the reporting year 2020. 5 Includes refuelling of service and function-related vehicles in Germany and at individual international locations (USA, Sweden, France). Private refuelling is not recorded. 6 Decrease is due to the pandemic-related reduction in travel activities. 7 Market-based emissions according to GHG Protocol Scope 2 guidance. VDA factors (updated in June 2019) used since the reporting year 2020. Scope 2 emissions calculated using the location-based method (total bought-in electricity and heat calculated using VDA factors): 1,250,572 t CO2. 8 The volume of carbon emissions in 2020 is not directly comparable with the figures reported for previous years, as the scope of analysis has been expanded to include local data from suppliers involved in supplying specified production plants as well as data from service providers involved in distributing vehicles to dealerships in specified markets and spare parts deliveries. 9 Includes air travel, train travel and rental cars. 10 The figures from 2020 onwards are not directly comparable with previous years due to the improved data basis. In some cases, figures are extrapolated based on surveys conducted at major national and international BMW Group locations. 11 Emissions from the upstream value chain and from disposal are calculated from the life cycle assessments in accordance with ISO 14040 / 44 of representative vehicles of the product lines using the LCA tool GaBi from the com- pany Thinkstep (including the climate-changing gases CO2, CH4, N2O, SF6, NF3). Corresponding to the CO2e emissions, the life cycle assessments show the energy consumption (lower calorific value): around 75,640,609 MWh in the upstream chain and around 502,243 MWh at disposal companies. 12 The fleet emissions are extrapolated from the average fleet emissions of the main sales markets of the BMW Group. The calculation was based on an average mileage of 150,000 km. GRI 302-2, 305-1, 305-2, 305-3 BMW GroupReport 2020 345 Other Information Further GRI Information ENERGY CONSUMPTION IN DETAIL ¹, ² in MWh 2016 2017 2018 2019 2020 TOTAL ENERGY CONSUMPTION Total energy consumption of which vehicle production of which motorcycle production of which non-manufacturing areas TOTAL ENERGY CONSUMPTION IN DETAIL Electricity (external source) Community heating Community cooling in Mwh FOSSIL FUELS Heating oil Natural gas of which CHP losses NON-FOSSIL FUELS Biogas (landfill gas) of which CHP losses Wood pellets RENEWABLES Solar (photovoltaics) 5,783,841 5,852,666 5,788,965 5,974,625 5,714,610 5,328,856 5,362,618 5,169,266 5,226,227 4,946,865 85,559 95,493 89,300 120,583 369,426 394,555 530,399 3 627,815 114,072 653,673 2,584,570 2,588,409 2,513,308 2,439,675 2,154,899 4 381,340 408,735 395,609 358,992 266,112 1,084 1,095 1,072 1,123 1,113 3,698 4,450 2,888 2,205 3,660 2,575,089 2,624,557 2,669,457 3,005,902 3,093,543 245,899 258,380 294,724 412,451 498,299 237,446 108,536 220 224,819 205,320 164,957 192,911 84,166 86,787 68,560 65,065 220 220 68 56 394 381 1,091 1,703 2,316 1 Energy consumption at BMW Group-owned production sites including BMW Motorrad Berlin (Germany) as well as administration, development and central distribution centres. 2 Upper calorific value for fossil fuels. 3 Figures since 2018 not directly comparable to previous years’ figures, mainly due to a more refined distinction between production and non-manufacturing areas (e. g. administration, development, central distribution centres). 4 The decrease was mainly due to the pandemic-related interruption of production at most BMW Group plants. For further explanations, see Resource Consumption and Resource Efficiency. GRI 302-1 BMW GroupReport 2020 Other Information Further GRI Information LOGISTICS: CARRIERS AND CO2 EMISSIONS ¹ INBOUND (MATERIAL PROVISION OF THE PLANTS AND SPARE PARTS DELIVERY) Transport volume in million tkm CO2 emissions in t OUTBOUND (DISTRIBUTION OF VEHICLES AND SPARE PARTS) Transport volume in million tkm CO2 emissions in t TOTAL (INBOUND AND OUTBOUND) Transport volume in million tkm CO2 emissions in t PERCENTAGE SHARE OF CARRIERS IN TOTAL (INBOUND AND OUT- BOUND) IN TERMS OF TRANSPORT VOLUME AND CO2 EMISSIONS Sea Road Rail Air 346 2016 2017 2018 2019 2020 15,202 506,604 25,006 920,795 40,208 1,427,399 g CO2 55.0 30.8 3.1 11.1 tkm 77.7 14.9 6.9 0.5 14,5453 537,9283 25,881 959,147 40,4263 1,497,0753 g CO2 52.93 31.73 2.5 12.93 tkm 75.8 17.2 6.32 0.72 14,491 589,730 25,777 974,189 40,268 1,563,919 g CO2 50.3 31.1 2.3 16.3 tkm 75.0 17.6 6.5 0.9 15,634 577,077 26,489 993,320 42,123 1,570,397 g CO2 47.8 37.5 2.6 12.2 tkm 73.0 20.1 6.3 0.6 13,623 4 472,290 23,622 4 850,569 37,245 4 1,322,859 2 g CO2 52.0 33.6 3.8 10.6 tkm 74.7 17.1 7.7 0.5 1 Figures refer to BMW and MINI (i. e. without Rolls-Royce) including BMW Brilliance Automotive Ltd., Shenyang, excluding contract manufacturing. CO2 emissions calculated in accordance with DIN EN 16258 and TREMOD 5.2 (air cargo belly / freighter). Scope: Inbound volumes (supply of materials to plants and spare parts delivery) for BMW and MINI vehicle plants worldwide as well as for the delivery of spare parts to central parts distribution. Outbound volumes (distribution of vehicles and spare parts) to distribution centres in markets worldwide and for certain markets to the trade, including contract manufacturing. 2 The volume of carbon emissions in 2020 is not directly comparable with the figures reported for previous years, as the scope of analysis has been expanded to include local data from suppliers involved in supplying specified production plants as well as from service providers involved in distributing vehicles to dealerships in specified markets and spare parts deliveries. 3 Due to new input data from an external service provider, the 2017 values were adjusted. 4 Decrease mainly due to lower production volumes. GRI 305-3 BMW GroupReport 2020 Other Information Further GRI Information 347 INPUT / OUTPUT ASSESSMENT OF BMW GROUP PRODUCTION ¹, ² AVERAGE DISTRIBUTION OF MATERIALS IN BMW GROUP VEHICLES ¹ INPUT Water 3 Energy OUTPUT Total waste 3 of which recyclable of which waste for disposal Total wastewater 3 CO2 emissions Volatile org. compounds (VOC) 3 NOX 4 CO 4 SO2 4 Particulates, dust 4 m³ 4,722,310 MWh 4,946,865 in % M.O.N. (modif. organ. Naturwerkst.) 0.4 Thermoplastic resins 12.0 Textiles 1.1 Others 9.8 1.9 Duromers t t t 775,459 768,292 7,168 m³ 3,378,877 Non-ferrous metals (e.g. aluminium) 18.1 Elastomers (e.g. tyres and seals) 3.8 52.9 Steel and iron 1 Calculation based on aggregated mean values of vehicles of the BMW 1, 2, 3, 4, 5, 6, 7, X1, X2, X3, X4, X5 and X6 series, MINI and MINI Countryman as well as the i3 and i8 BMW i models and the PHEV versions of BMW 3, 5, 7, X1 and X5 series and MINI Countryman. GRI 301-1 t t t t t t 566,804 1,697 670 393 11 41 1 Incl. BMW Brilliance Automotive Ltd., Shenyang, not including contract production. 2 The number of vehicles produced in 2020 decreased to around 2.25 million units (2019: around 2.56 mil- lion units). Based on an average weight of BMW Group vehicles of around 1.6 t, the total weight of input materials is around 3.6 million t. To calculate the individual material flows, the total weight is multiplied by the average distribution of the materials in BMW Group vehicles. 3 The figure includes only automobile production (i. e. excluding motorcycles). 4 BMW Group measurements / capture as well as calculations based on energy consumption (primarily heating oil and gas) with the aid of the VDA emission factors. GRI 301-1, 302-1, 305-1, 305-7 BMW GroupReport 2020 5,017,816 5,073,220 5,425,073 5,417,428 4,722,310 2 87.1 12.5 0.5 0.0 88.0 11.7 0.3 0.0 90.4 9.6 0.0 0.0 87.4 12.6 0.0 0.0 86.3 13.6 0.0 0.1 1 These figures refer to the production sites of the BMW Group incl. the BMW Brilliance Automotive Ltd. joint venture in Shenyang. BMW Motorrad is not included. 2 Decrease mainly due to lower production volumes and reduced cooling requirements at BMW Group locations worldwide. 348 WATER CONSUMPTION PER VEHICLE PRODUCED ¹ 2016 2017 2018 2019 2020 in m³ 2.25 2.22 2.39 2.32 2.25 3.0 1.5 1.0 2016 2017 2018 2019 2020 1 Efficiency indicator = water consumption from vehicle production divided by the total number of vehicles produced, incl. BMW Brilliance Ltd. joint venture in Shenyang, not including vehicles from the Magna Steyr and Nedcar contract production plants. BMW Motorrad is not included either. PROCESS WASTEWATER PER VEHICLE PRODUCED ¹ Other Information Further GRI Information WATER CONSUMPTION ¹ in m ³ Water consumption of which drinking water in % of which groundwater in % of which surface water in % of which rainwater in % WASTEWATER ¹  in m ³ Total wastewater 2016 2017 2018 2019 2020 in m³ 3,312,562 3,633,306 3,432,982 3,578,497 3,378,877 of which process wastewater 944,008 914,016 1,015,736 1,036,179 988,392 of which wastewater from sanitary facilities 2,368,554 2,719,290 2,417,246 2,542,318 2,390,485 Total heavy metals and heavy metal compounds in kg 742 406 461 402 313 COD 2 in kg AOX 3 in kg 2,085,398 2,273,678 1,902,577 1,960,211 1,491,848 131 101 64 63 54 1 The key performance indicator “Process wastewater” is measured after wastewater treatment in BMW Group plants (incl. the BMW Brilliance Automotive Ltd. joint venture in Shenyang) has taken place. BMW Motorrad is not in- cluded. Together with the wastewater from sanitary facilities at the plants, this is the figure for total wastewater. Due to factors such as evaporation, water input does not correspond to total wastewater. 0.8 0.4 0 0.42 0.40 0.45 0.44 0.47 2 COD = chemical oxygen demand. 3 AOX = absorbable organic halides in water. 2016 2017 2018 2019 2020 1 Efficiency indicator = process wastewater from vehicle production divided by the total number of vehicles produced, incl. BMW Brilliance Automotive Ltd. joint venture in Shenyang, not including vehicles from the Magna Steyr and Nedcar contract production plants. BMW Motorrad is not included either. BMW GroupReport 2020 Other Information Further GRI Information WASTE ¹ in t Total waste Hazardous waste for recovery Hazardous waste for disposal Non-hazardous waste for recovery Non-hazardous waste for disposal Materials for recycling 3 Metals for recycling (scrap) Waste for disposal 349 WASTE FOR DISPOSAL PER VEHICLE PRODUCED ¹ 2016 2017 2018 2019 2020 in kg 762,924 785,209 789,817 780,911 775,459 30,855 4,219 36,379 4,992 37,259 4,717 44,572 4,894 44,267 3,882 2 723,632 739,799 742,652 726,590 724,025 3,732 754,486 569,841 7,951 4,039 776,179 571,685 9,031 5,189 779,911 560,164 9,906 4,855 771,162 503,928 9,749 3,286 2 768,292 453,106 7,168 10 5 0 3.51 3.86 4.27 4.09 3.33 2016 2017 2018 2019 2020 1 These figures refer to the production sites of the BMW Group incl. the BMW Brilliance Automotive Ltd. joint venture in Shenyang. BMW Motorrad is not included. 2 Decrease mainly due to changes in the structure of the existing recovery and recycling firms at the individual locations. For further explanations, see 3 Includes both recycling and thermal utilisation. Resource Consumption and Resource Efficiency. 1 Efficiency indicator = waste for disposal from vehicle production divided by the total number of vehicles produced, incl. BMW Brilliance Automotive Ltd. joint venture, Shenyang, not including vehicles from the Magna Steyr and Nedcar contract production plants. BMW Motorrad is not included either. SOLVENT EMISSIONS PER VEHICLE PRODUCED ¹ in kg  2.0 1.0 0 1.14 1.03 0.93 0.85 0.81 2016 2017 2018 2019 2020 1 Efficiency indicator = VOC emissions from vehicle production divided by the total number of vehicles produced, without motorcycles, incl. BMW Brilliance Automotive Ltd. joint venture Shenyang, not including the vehicles from the Magna Steyr and Nedcar contract production plants. BMW GroupReport 2020 Other Information Further GRI Information 350 ENVIRONMENTAL MANAGEMENT SYSTEMS AT PRODUCTION LOCATIONS Production plant BMW GROUP PLANTS Araquari / BR Berlin / DE Chennai / IN Dingolfing / DE Eisenach / DE Goodwood / UK Hams Hall / UK Landshut / DE Leipzig / DE Manaus / BR Munich / DE Oxford / UK Rayong / TH Regensburg / DE Rosslyn / ZA San Luis Potosí / MX Spartanburg / US Steyr / AT Swindon / UK Wackersdorf / DE ASSEMBLY PLANTS Jakarta / ID Cairo / EG Kaliningrad / RU Kulim / MY Environmental management system Date of most recent ISO 14001 certification ISO 14001 ISO 14001 / EMAS ISO 14001 ISO 14001 / EMAS ISO 14001 / EMAS ISO 14001 ISO 14001 ISO 14001 / EMAS ISO 14001 / EMAS January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 National Standard 2 / ISO 14001 Certification planned in 2021 ISO 14001 / EMAS ISO 14001 ISO 14001 ISO 14001 / EMAS ISO 14001 ISO 14001 ISO 14001 ISO 14001 / EMAS ISO 14001 ISO 14001 / EMAS ISO 14001 ISO 14001 ISO 14001 ISO 14001 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 March 2019 January 2018 1 January 2018 1 January 2018 1 January 2018 1 May 2019 November 2018 August 2020 December 2018 BMW BRILLIANCE AUTOMOTIVE HOLDINGS LTD. JOINT VENTURE BMW Brilliance Automotive, Shenyang / CN (joint venture) 3 ISO 14001 December 2018 CONTRACT PRODUCTION Loncin Motor Co., Chongqing / CN Magna Steyr Fahrzeugtechnik, Graz / AT TVS Motor Company, Hosur / IN VDL Nedcar, Born / NL 1 Three-year validity period extended by a further six months due to the coronavirus pandemic.. 2 Compliance with legal requirements. 3 The joint venture comprises three locations. ISO 14001 ISO 14001/EMAS ISO 14001 ISO 14001 August 2018 July 2018 January 2020 October 2020 BMW GroupReport 2020 351 Other Information Further GRI Information SUSTAINABILITY ASSESSMENT OF RELEVANT SUPPLIER LOCATIONS 2018 2019 2020 Number of supplier locations assessed 1 Proportion of audited suppliers of production-related material with a contract volume greater than € 2 million 1 Proportion of audited suppliers of non-production-related material with a contract volume greater than € 10 million 1 Number of identified sustainability deficits at potential and existing supplier locations from an ESG perspective 1 Number of agreed corrective measures aimed at addressing those sustainability deficits 1 Number of audits and assessments conducted by or on behalf of the BMW Group 2 Number of supplier locations not awarded contracts because they fail to meet the BMW Group’s sustainability or other requirements 1 Number of existing supplier relationships that had to be terminated prematurely due to serious sustainability violations Number of notifications of potential violations of our sustainability principles received through our supply chain reporting channels of which number of notifications that were clarified during the reporting year 1 Basis: Industry-specific sustainability questionnaire. 2 Includes on-site visits and remote audits. GRI 308-1, 308-2, 414-1, 414-2 4,168 97 % 80 % 2,320 1,123 89 193 0 9 9 BMW GROUP SUPPLIERS PARTICIPATING IN THE CDP SUPPLY CHAIN PROGRAMME Number of reporting suppliers Number of suppliers newly admitted to the programme the year under report Proportion of reporting suppliers in the BMW Group’s production-relevant purchasing volume Average score of participating suppliers evaluated Proportion of suppliers with a score of B or higher 2018 190 20 75 % C 30 % 3,921 95 % 72 % 2,131 1,317 105 153 0 2 2 2019 199 24 78 % C 34 % 3,220 98 % 56 % 1,902 1,225 313 108 0 3 2 2020 218 25 79 % C 35 % 1 1 The target of at least 60 % of BMW Group suppliers participating in the CDP Supply Chain Programme achieving a score of at least B by 2020 was not achieved. The target period was therefore extended to 2025. BMW GroupReport 2020 Other Information Further GRI Information EMPLOYEES AND SOCIETY 352 EMPLOYEES AT END OF YEAR ¹ EMPLOYEES IN GERMANY AND ABROAD ¹ BMW Group Automotive Motorcycles Financial Services Other Share of employees with fixed-term contracts 2 Employees in part-time employment 3 2016 2017 2018 old 2019 new 2019 2020 Number of employees in thousands 124,729 112,869 129,932 117,664 134,682 121,994 133,778 126,016 120,726 121,208 113,719 108,676 200 3,351 8,394 115 4,270 4,753 3,506 8,645 117 4,685 5,553 3,709 8,860 119 4,638 6,299 3,658 8,798 114 3,803 6,318 3,503 8,684 110 3,489 6,318 4 3,474 8,473 103 2,892 6,433 1 The term “employee” has been redefined with effect from the reporting year 2020 (for definition, see Glossary). For the period 2018 and earlier, the percentage of employees no longer covered by the new definition is between 7.5 % and 8.0 %. 2 Within BMW AG (which employs around two-thirds of the entire workforce of BMW Group), 0.8 % of employees are on fixed-term contracts. Approximately 27 % of employees are on fixed-term contract are women. Under the current system, this data is only collated for BMW AG. 3 Permanent and fixed-term employees. 4 Corresponds to the new definition of an employee with effect from 2020, therefore no change in the figure. GRI 102-8 124.7 2 129.9 3 134.7 4 133.8 5 126.0 6 120.7 7 Employees in foreign countries 100 Employees in Germany 0 2016 2017 2018 2019 OLD 2019 NEW 2020 1 The term “employee” has been redefined with effect from the reporting year 2020 (for definition, Glossary). For the period 2018 and earlier, the percentage of employees no longer covered see by the new definition is between 7.5 % and 8.0 %. 2 Of whom 35.4 % are tariff-bound production employees of the BMW Group. 3 Of whom 35.7 % are tariff-bound production employees of the BMW Group. 4 Of whom 35.3 % are tariff-bound production employees of the BMW Group. 5 Of whom 36.7 % are tariff-bound production employees of the BMW Group. 6 Of whom 38.2 % are tariff-bound production employees of the BMW Group. 7 Of whom 37.9 % are tariff-bound production employees of the BMW Group. GRI 102-7 BMW GroupReport 2020 353 2020 100 84 100 100 63 0 100 Other Information Further GRI Information SHARE OF EMPLOYEES PER COUNTRY WITH PRODUC- TION LOCATION(S) SHARE OF EMPLOYEES REPRESENTED BY A TRADE UNION OR FALLING UNDER COLLECTIVE AGREEMENTS in % Germany 1 UK China (plant) Austria 1 South Africa USA (no collective agreements exist) Mexico 1 1 Excluding executives and contractors. GRI 102-41 866 Brazil of which fixed-term 24 2,911 Mexico of which fixed-term 1 7,301 Other countries of which fixed-term 370 81,367 Germany of which fixed-term 799 ALTERNATIVE WAYS OF WORKING AT BMW AG ¹ 2016 100 85 100 100 58 0 – 2017 100 86 100 100 53 0 – 2018 100 85 100 100 62 0 – 2019 100 85 100 100 59 0 100 Number of employees China 2,110 of which fixed-term 809 Thailand 566 of which fixed-term 45 India 591 of which fixed-term 20 South Africa 2,878 of which fixed-term 652 Austria 3,618 of which fixed-term 67 USA 11,924 of which fixed-term 0 UK 6,594 of which fixed-term 105 A good two-thirds the BMW Group workforce are employed in Germany, followed by the USA with 9.9 % and the UK with 5.5 %. GRI 102-8 Number of employees Part-time workers 2 in % of total number of employees 2016 2017 2018 old 2019 new 2019 2020 4,294 5.0 4,572 5.2 5,000 5.6 5,630 6.4 5,440 6.6 5,568 7.0 Teleworking positions 3 28,088 31,754 34,339 36,066 36,208 43,309 in % of total number of employees Number of employees who use “Vollzeit Select” in % of total number of employees 4 Sabbaticals in % of total number of employees Parental leave in % of total number of employees 59.4 3,998 5.1 598 0.7 3,028 3.5 63.3 4,690 5.3 567 0.6 3,389 3.9 66.1 5,508 6.1 648 0.7 3,675 4.1 69.4 5,500 6.2 764 0.9 4,096 4.6 70.8 5,474 6.6 764 0.9 4,082 4.9 87.2 4,747 6.0 653 0.8 4,158 5.2 1 The term “employee” has been redefined with effect from the reporting year 2020 (for definition, see Glossary). For the period 2018 and earlier, the percentage of employees no longer covered by the new definition is between 7.5 % and 8.0 %. 2 Of which 3,608 were female (65 %). For systemic reasons, this number is only calculated for BMW AG. 3 Only workers in administrative positions who engaged in teleworking. 4 Statistical population not including apprentices, interns, thesis students working at the company and doctoral candidates. GRI 102-8, 401-3 BMW GroupReport 2020 Other Information Further GRI Information 354 AVERAGE TRAINING HOURS AT THE BMW AG ACADEMY, BY EMPLOYEE CATEGORY SHARE OF WOMEN IN THE WORKFORCE BY COUNTRY WITH PRODUCTION SITE(S) ¹ Employee category 2018 2019 2020 in % Non-tariff employees “Meister” (master craftsmen) Tariff GRI 404-1 22.7 17.7 11.9 16.7 14.1 10.6 14.1 21.1 7.1 TOTAL NUMBER OF EMPLOYEES LEAVING BMW AG, BY REASON FOR LEAVING ¹ Number Total Part-time retirement, retirement, death Voluntarily left company (termination or suspension of employment contract by employee) Dismissed by employer 2016 2017 2018 2019 2020 2,067 1,199 809 59 2,077 1,207 809 61 2,247 1,314 873 60 2,794 1,700 1,029 65 4,535 1,884 2,601 2 50 1 Figures refer to employees with permanent contracts. 2 Increase mainly due to a set of personnel measures. For further explanations, see Long-term Employee Development and Employer Attractiveness. GRI 401-1 16.4 Germany 16.6 UK 24.9 USA 15.8 Austria 22.1 South Africa 8.0 India 32.0 Thailand 50.3 China 19.4 Brazil 30.0 Mexico 35.7 Other countries 0 25 50 1 For the purposes of calculating the total number of employees in the BMW Group, the term "employee" has been redefined with effect from the reporting year 2020 (for definition, see Glossary). GRI 405-1 BMW GroupReport 2020 Other Information Further GRI Information 355 SHARE OF LOCAL EMPLOYEES IN MANAGEMENT POSITIONS AT MAJOR COMPANY LOCATIONS ¹ SHARE OF EMPLOYEES WITH SEVERE DISABILITIES AT BMW AG ¹ in % Germany UK USA Austria South Africa India Brazil China 2 Thailand Mexico 3 2016 2017 2018 2019 2020 in % 99.3 87.5 89.4 84.8 85.4 66.7 67.6 65.8 65.6 – 99.4 86.3 87.7 82.8 83.0 70.0 76.1 76.5 56.8 – 99.5 86.9 88.3 85.6 82.8 74.4 77.6 76.7 56.8 – 99.7 87.5 87.4 82.3 82.7 82.1 78.2 73.7 57.1 48.4 99.7 89.8 89.1 78.7 85.9 68.4 84,9 78.8 57.8 62.9 1 “Local” refers to managers with local contracts. People deployed to work at the location who do not have a local employment contract are not included. These are reflected in the difference to 100 in each case. 2 Including employees of the joint venture BMW Brilliance Automotive Ltd., Shenyang, which is not consolidated in the BMW Group. 3 Start of production 06 / 2019. GRI 405-1 6.4 6.3 6.4 6.5 6.6 8.0 6.0 4.0 2016 2017 2018 2019 2020 1 The share of employees with severe disabilities is based on the statutory requirements in accordance with the German Social Code (SGB IX). In addition, the BMW Group awarded contracts amounting to around € 25 million (2019: € 35.5 million) to workshops for the severely disabled in Germany in 2020, of which around € 7 million (2019: € 8.5 million) can be written off in accordance with the compensatory levy act. The significant year-on-year decline in orders placed with workshops for the severely disabled was mainly due to corona virus-related restrictions imposed on workshops, which also results in a reduction of the off- settable portion of the disabled persons levy. MAIN ACCIDENT FACTORS ¹ in % Other 8.3 Transport 9.3 Cleaning 1.6 Testing 3.6 Secondary activities 9.6 Assembly / dismantling 17.4 7.2 Processing 3.9 Driving 26.4 Walking 12.7 Handling parts 1 The accident severity rate in the reporting year was 53.4 lost days (due to occupational accidents) per 1 million hours worked (2019: 78.3). GRI 403-9 BMW GroupReport 2020 Other Information Further GRI Information 356 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT SYSTEMS AT PRODUCTION LOCATIONS Production plant BMW GROUP PLANTS Araquari / BR Berlin / DE Chennai / IN Dingolfing / DE Eisenach / DE Goodwood / UK Hams Hall / UK Landshut / DE Leipzig / DE Manaus / BR Munich / DE Oxford / UK Rayong / TH Regensburg / DE Rosslyn / ZA San Luis Potosí / MX Spartanburg / US Steyr / AT Swindon / UK Wackersdorf / DE ASSEMBLY PLANTS Jakarta / ID Cairo / EG Kaliningrad / RU Kulim / MY Management system Most recent year of certification ISO 45001 OHSAS 18001 ISO 45001 OHRIS OHSAS 18001 ISO 45001 ISO 45001 OHRIS OHRIS National standard2 OHRIS ISO 45001 OHSAS 18001 OHRIS ISO 45001 ISO 45001 ISO 45001 ISO 45001 ISO 45001 OHRIS OHSAS 18001 OHSAS 18001 National standard2 OHSAS 18001 December 2019 December 20171 November 2020 May 2018 September 2018 August 2020 November 2020 October 2018 March 2019 Implemented March 2018 November 2020 January 2019 August 2018 December 2020 June 2020 April 2019 April 2019 October 2020 August 2018 May 20171 October 2020 Implemented December 2018 BMW BRILLIANCE AUTOMOTIVE HOLDINGS LTD. JOINT VENTURE BMW Brilliance Automotive Ltd., Shenyang / CN (joint venture) 3 ISO 45001 December 2020 CONTRACT PRODUCTION Loncin Motor Co., Chongqing / CN Magna Steyr Fahrzeugtechnik, Graz / AT TVS Motor Company, Hosur / IN VDL Nedcar, Born / NL 1 Three-year validity period extended until March 2021 due to coronavirus pandemic. 2 Compliance with legal requirements. 3 The joint venture comprises three locations. GRI 403-8 ISO 45001 OHSAS 18001 ISO 45001 National standard2 January 2021 August 2018 January 2020 Implemented BMW GroupReport 2020 Other Information Reporting Concept REPORTING CONCEPT The BMW Group Report 2020 is based on the follow- ing reporting and accounting standards: SUSTAINABILITY DISCLOSURES The NFS contained in the Combined Management Report, the chapter “Dialogue with Stakeholders”, the supplementary sustainability-related disclosures in the chapter Additional GRI Information and the GRI Content Index have been prepared in accordance with the standards of the Global Reporting Initiative (GRI) (comprehensive option). MANAGEMENT REPORT UN GLOBAL COMPACT – REPORT ON PROGRESS German Commercial Code (HGB); German Ac- counting Standards (DRS); Guidelines on Alternative Performance Measures of the European Securities and Markets Authority (ESMA) Combined Non-Financial Statement (NFS) at Group and Company level in accordance with § 289 b and § 315 b HGB In 2001, the BMW Group committed to implement- ing the principles of the United Nations Global Compact and provides information in this report on the progress made towards achieving that aim. References to the Global Compact principles have been integrated in the GRI Content Index. TCFD DISCLOSURES GROUP FINANCIAL STATEMENTS OF BMW AG The Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU), and the supplementary requirements of § 315 e of the German Commercial Code (HGB). The BMW Group follows the recommendations of the Task Force on Climate-related Financial Disclo- sures (TCFD) with a view to providing information on climate-related risks and opportunities as transparently as possible within the framework of corporate financial reporting. The BMW Group reports on these issues both in its own integrated report as well as through its CDP 2020 CDP questionnaire is availa- scoring disclosures. The TCFD Index in the ble on the BMW Group website. The 357 appendix to this report provides a compact overview of the key statements in the four TCFD core elements and their location in the BMW Group Report and the CDP questionnaire. MAIN TOPICS ADDRESSED IN THE NFS The main topics addressed in the NFS to ensure com- pliance with § 289 c and § 315 c HGB were determined partly on the basis of the results of the materiality anal- ysis updated in 2018 and in line the requirements of the Global Reporting Initiative (GRI) and partly on the basis of the BMW Group’s own long-term sustainability goals. For these purposes, consideration was given to the BMW Group’s own business operations, products and services on the one hand and its business relationships (e. g. along the supply chain) on the other. Topics of par- ticular relevance are presented in the combined, separate non-financial statement. The order of topics covered is aligned with the long- term sustainability goals of the BMW Group and does not represent any particular weighting of the topics. In accordance with the statutory materiality requirements, information has been in each case with a view to pro- viding an understanding of the BMW Group’s business performance, results of operations and financial position, while also showing the impact of business activities on the non-financial aspects specified in the legislation. BMW GroupReport 2020 Other Information Reporting Concept 358 EXTERNAL AUDIT PUBLICATION AND SCOPE The entire report of BMW AG, comprising the Com- bined Management Report, the Group Financial State- ments, the disclosures on corporate governance and the additional GRI information, has been subject to an annu- al independent audit by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (“PwC” or “Auditor”). The external audit serves to underpin the reliability and trustworthiness of the information for the public. PwC has audited the Group Financial Statements and the Combined Management Report for the year ended 31 December 2020 and issued an unqualified audit opin- ion thereon. Those parts of the Combined Management Report, which relate primarily to the NFS pursuant to §§ 289 b and 315b HGB as well as the chapter “Dialogue with Stakeholders” and the section ”Additional GRI Informa- tion” were subjected to a limited assurance engagement and are marked with the symbol . In addition, in- dividual parts of the NFS were subjected to a reasonable assurance engagement. The external audit supports the Supervisory Board of BMW AG in the fulfilment of its auditing duties. ... The report is published annually in German and English on the BMW Group website. The GRI Content Index is also available on the website as a separate PDF document. The reporting period covers the financial year from 1 January to 31 December 2020. The state- ments made in the report relate to the BMW Group reporting entity. Any deviations from this are marked accordingly. Nothing significant has changed in the reporting period with regard to the organisation of the BMW Group. The global supplier network is subject to continuous change. The 2021 report will be published in spring 2022. GRI 102-10, 102-45, 102-50, 102-51, 102-52, 102-55 FORWARD-LOOKING STATEMENTS The report contains various forward-looking state- ments about future developments which are based on the current status of the BMW Group’s assumptions and forecasts. They are therefore subject to a variety of predictable and unpredictable risks, uncertainties and other factors, so that the actual outcome, including the BMW Group’s net assets, financial position and results of operations, its development or performance could differ considerably. The BMW Group makes no commitment to update such forward- looking statements or to adapt them to future events or developments. BMW GroupReport 2020 Other Information TCFD-Index TCFD-INDEX 359 TCFD Key elements Key elements of summarised disclosures / Key messages GOVERNANCE A. Responsibility of the Board of Management for climate-related risks and opportunities The highest level of direct responsibility for climate change issues is the Board of Management, which determines the Group’s strategic course with regard to sustain- ability issues, including addressing climate change. Every proposal considered by the Board of Management must be assessed from a sustainability perspective. The new substance targets for 2030 developed and adopted in 2020 that focus on decarbonisation have been incorporated into the BMW Group’s target controlling system and will be taken into account in the compensation of the Board of Management and top management going forward. B. The role of management in assessing and managing climate-related risks and opportunities All Board of Management members bear responsibility for climate change-related issues and ensure that the Group’s strategy with regard to sustainability and climate change is implemented as a systematic driver in all Board areas of responsibility. One focus of the Group’s strategy in the 2020 reporting year was the topic of addressing climate-related risks and opportunities. The impacts of this topic were assessed, internal structures for decision-making and controlling were established with the partici- pation of top management, and project organisations were set up in the relevant Board areas of responsibility. STRATEGY Sustainability is the basic pattern that shapes the BMW Group’s strategy. From beginning to end, activities and plans should comprehensively be examined with regard to their economic, ecological and social impacts and the corresponding decisions taken based on an integrated approach. The BMW Group is firmly convinced that the fight against climate change and the responsible use of resources will determine the future of our society – and thus also that of the BMW Group. Particularly as a premium manufacturer, the BMW Group aspires to lead the way in promoting sustainability. In addition to the Group’s activities to reduce greenhouse gas emissions (mitigation), addressing the consequences of climate change (adaptation) is also being dealt with and assessed within the framework of the “Adaptation to Climate Change” strategy project. A. Climate-related risks and opportunities As a globally leading provider of premium automobiles, motorcycles, mobility services and financial services, the BMW Group is exposed to an array of uncertainties and changes. In order to ensure growth, profitability, efficiency and continued sustainability going forward, the BMW Group needs to take well calculated risks and make full use of any opportunities that present themselves. In the context of its “Adaptation to Climate Change” strategy project, the BMW Group is preparing for a broad range of possible consequences and plans to systematically integrate reporting on the opportunities and risks associated with climate change in its Group Report. Reference to chapters in the BMW Group Report 2020 and the CDP questionnaire for 2020 BMW Group Report 2020: Strategy, Goals and Management System Corporate Governance CDP questionnaire 2020: A: C1.1b B: C1.2, C1.2a CDP questionnaire 2020: Strategy, Goals and Management System Risks and Opportunities Products and Services Production, Purchasing and Supplier Network CDP questionnaire 2020: A: C2.1, C2.3, C2.3a, C2.4, C2.4a BMW GroupReport 2020 Other Information TCFD-Index 360 TCFD Key elements Key elements of summarised disclosures / Key messages Reference to chapters in the BMW Group Report 2020 and the CDP questionnaire for 2020 STRATEGY Significant opportunities — The BMW Group intends to press ahead with the systematic electrification of all its brands and model series. By 2023, it plans to have 25 electrified vehicles on the road. Achieving this aim will provide the Group with an attractive portfolio to respond to the growing customer demand for battery-electric and plug-in hybrid vehicles. — Smart, scalable vehicle architectures that can be equipped with all available types of drivetrain systems are intended to give the Group the flexibility to successfully implement the shift towards climate neutrality that is both called for politically and aspired to socially. — The BMW Group’s production system is capable of manufacturing both conventional internal combustion and electrically powered vehicles on a single line, enabling it to respond flexibly to changing customer requirements for various drivetrain systems. — (The BMW Group is convinced that the ability to produce electric drivetrains, batteries and prototypes for battery cells in-house creates a decisive competitive advan- tage that enables it...) The BMW Group is convinced that the ability to produce electric drivetrains, batteries and prototypes for battery cells in-house gives it a decisive competitive edge that enables it to safeguard its know-how in new technologies, gain crucial system expertise and leverage cost advantages. — Contracts have been concluded with various battery cell suppliers in order to safeguard the Group’s electrification strategy. Volume flexibility has been written into the contracts to ensure additional latitude in the supply of battery cells. — The BMW Group has already contractually agreed with its cell manufacturers that only green electricity will be used to produce the fifth generation of battery cells. From the BMW Group’s point of view, establishing the carbon footprint as an award criterion in the supply chain is a key competitive advantage in efficiently reducing carbon emissions in upstream processes. — The BMW Group is boosting efficiency and cutting costs by switching to lower-carbon processes and technologies in its own production facilities. — By generating its own electricity from renewable sources, the BMW Group is reducing not only its carbon footprint, but also its dependence on external sources. — The BMW Group is adapting to the expected consequences of climate change by conducting an assessment and deriving measures required to mitigate the physical risks for BMW-relevant assets (e. g. properties, suppliers, logistics). Significant risks — As climate change progresses, natural disasters are likely to occur on an increasing scale and impact the BMW Group in a variety of ways, with a negative influence on economic growth in the affected regions, among other factors. Any ensuing drop in consumer purchasing power due to a loss of income and the threat of unemploy- ment would, in turn, have a negative earnings impact for the BMW Group. — The short-term introduction of more stringent legislation and regulations in the BMW Group’s main markets (EU, USA, China), particularly regarding carbon emissions regulations, could have an effect on the Group’s range of products and services. — The scale of acute and chronic physical risks (e. g. floods, storms, droughts) to BMW-relevant assets (e. g. properties, suppliers, logistics) could rise. — There could a greater risk of interruptions in the supply chain or the inability of individual suppliers to deliver, particularly due to breaches of sustainability or quality standards and the danger of natural disasters. — The risk of bottlenecks in the availability of raw materials, particularly those required to manufacture battery cells could increase. Moreover, if commodity price risks materialise, they could have an impact on earnings. — The rising price required to be paid for CO2 emissions in energy-intensive supply chains could result in higher purchasing prices. — More stringent regulatory requirements for issuers could make the BMW Group less attractive as a sustainable investment. BMW GroupReport 2020 Other Information TCFD-Index 361 TCFD Key elements Key elements of summarised disclosures / Key messages STRATEGY B. The impact of climate-related risks and opportunities on the Group's business activities and its strategic and financial corporate planning The necessity to contain climate change has a major impact on both short- and long-term decision-making at the BMW Group. In the year under report, the BMW Group assessed its carbon emissions over the entire life cycle of its vehicles, using the internationally recognised method devised by the Science Based Targets Initiative (SBTI). Decarbonisation targets for the supply chain, production and use phase of its vehicles were developed for the period up to 2030, approved by the Board of Management and registered with the SBTI. From the BMW Group’s perspective, these science-based decarbonisation targets are intended to provide a clearly defined pathway to sus- tainable growth. Reference to chapters in the BMW Group Report 2020 and the CDP questionnaire for 2020 CDP questionnaire 2020: B: C2.3, C2.3a, C2.4a, C3.1, C3.1b, C3.1d as well as examples of strategic decisions C: C3.1a, C3.1d well as assessment of strategy resilience BMW Group Report 2020: Risks and Opportunities CDP questionnaire 2020: A: C2.2, C2.2a B: C2.2a C: C2.2 RISK MANAGEMENTT C. Resilience of the BMW Group's strategy The BMW Group conducts stress tests using qualitative and quantitative sensitivity analyses. Product planning, sales volumes and R&D investments all take the goals of the Paris Climate Agreement into account. A. Group processes for identifying and assessing climate-related risks Risk management is organised as a decentralised, Group-wide network and controlled via a centralised risk management function. Every BMW Group divisional area of responsibility is represented by Network Representatives. Any significant risks reported from within the network, including sustainability- and climate-related risks, are presented for review to the Risk Management Steering Committee, which is chaired by Group Controlling. After review, any risks regarded as significant are reported to the Board of Management and the Supervisory Board’s Audit Committee. In addition, topics that represent opportunities or risks for the BMW Group’s business in the long term are identified by means of an environmental radar that continuously monitors external changes. Apart from reducing greenhouse gas emissions (mitigation), the topic of adaptation (adjustment to the consequences of climate change) was also addressed in line with Group strategy. As part of the strategy project set up for this purpose, key links in the BMW Group’s value chain were singled out (e. g. properties, suppliers, logistics, products) for which the consequences of climate change are likely to be particularly relevant and for which adaptation measures will need to be taken in order to mitigate medium-term climatic changes. Various annual time slices as well as climate scenarios are used to determine the risks. Based on the IPCC (Intergovernmental Panel on Climate Change), three scenarios were defined in order to present and assess climate change-related risks. A low-emission scenario takes a < 2°C pathway into account. Accordingly, all countries world- wide agree to combat climate change and implement rigorous climate protection policies. On the one hand, this scenario means greater transition-related risks for the BMW Group, for example due to stricter carbon emissions regulations in its main markets, but on the other hand it limits physical risks. The second climate scenario cho- sen by the BMW Group outlines a “medium” emissions scenario in which moderate emissions levels are assumed. Limited climate protection will lead to a medium level of transitional and physical risk. Another scenario portrays how the world will look if little or nothing is undertaken to protect the climate. This scenario would mean the high- est level of emissions and therefore the highest level of physical risk. B. Group processes for managing climate-related risks The efficient management of opportunities and risks is key to responding appropriately to changes that occur in political, economic, technical or legal conditions. The BMW Group has put a comprehensive risk management system in place to manage these risks in a structured manner as they arise. The aim of the risk management sys- tem is to identify, assess and actively manage any risks that could threaten the attainment of the Group’s corporate targets. Within that process, any individual and cumula- tive risks that pose a threat to the BMW Group’s success are monitored and managed. As part of its “Adaptation to Climate Change” project, the BMW Group is discussing the integration of sustainability and, above all, climate-related risks in Group-wide risk management processes. Risks are classified both according to their potential impact on earnings (worst-case scenario) and according to the risk amount (average earnings impact, taking into account the probability of occurrence). As part of the existing natural hazard assessment process for properties and suppliers, current climate change-related hazards are also taken into account and assessed accordingly. The consideration of future medium-term physical risks is being investigated within the context of a current strategy project. C. Integrating processes for identifying, assessing and managing climate-related risks within the Group's general risk management system Alongside comprehensive risk management, sustainability constitutes a core strategic principle of the BMW Group. Risks resulting from sustainability aspects that could have an impact on the BMW Group are generally identified via the Group-wide risk management network. When analysing sustainability-related opportunities and risks, the physical risks associated with climate change (e. g. disruption of supply chains due to natural hazards) and transition-related risks (such as the ability to meet emissions requirements) are also assessed. BMW GroupReport 2020 Other Information TCFD-Index 362 TCFD Key elements Key elements of summarised disclosures / Key messages KEY SUSTAINABILITY INDICATORS AND TARGETS A. Key sustainability indicators the Group uses to assess climate-related risks and opportunities The BMW Group Report provides an overview of key sustainability indicators that the BMW Group uses to measure, monitor and manage its sustainability targets. The key sus- tainability indicators here are carbon emissions per vehicle produced and carbon emissions (g CO2 / km) generated by the new vehicle fleet (EU including Norway and Iceland). B. Disclosure of Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions The BMW Group discloses its Scope 1, Scope 2 and Scope 3 emissions within the framework of its carbon footprint reporting process. C. Targets according to which the Group addresses climate-related opportunities and risks The BMW Group has set itself the following carbon reduction targets per vehicle produced throughout their life cycle for 2030 (base year 2019): – 20 % supply chain; – 80 % production; – 40 % use phase. Reference to chapters in the BMW Group Report 2020 and the CDP questionnaire for 2020 BMW Group Report 2020: Products and Services Production, Purchasing and Supplier Network Carbon footprint of the BMW Group CDP questionnaire 2020: A: C4.2, C9.1 B: C6.1, C6.3, C6.5 C: C4.1, C4.1a, C4.1b, C4.2 BMW GroupReport 2020 363 Other Information NFE-Index NFE-INDEX Mandatory disclosure pursuant to section 289 c – e HGB Chapter in BMW Group Report 2020 Business model Organisation and Business Model Integration of top management Strategy, Goals and Management System Risks Report on Risks and Opportunities Connection to figures in financial statements Environmental matters Employee matters Social matters Respect for human rights About this Report Compliance and Human Rights Long-term Employee Development and Employer Attractiveness Products and Services Production, Purchasing and Supplier Network Long-term Employee Development and Employer Attractiveness Health and Performance Employee Diversity Design and Product Safety Corporate Citizenship Compliance and Human Rights Purchasing and Supplier Network Combatting corruption and bribery Compliance and Human Rights BMW GroupReport 2020 Other Information BMW Group Fuel Consumption and CO₂ Emissions Information 364 BMW GROUP FUEL CONSUMPTION AND CO2 EMISSIONS INFORMATION As of February 2021 Model BMW BMW 330e Sedan BMW 330e xDrive Sedan BMW M3 Competition BMW M3 BMW 330e Touring BMW 330e xDrive Touring BMW M4 Competition BMW M4 BMW 530e Sedan BMW 530e xDrive Sedan BMW 545e xDrive Sedan BMW 530e Touring BMW 530e xDrive Touring BMW M8 BMW X1 xDrive25e BMW X2 xDrive25e BMW X3 xDrive30e BMW X5 xDrive45e Figures according to NEDC Figures according to NEDC Fuel consumption in l / 100 km (combined / weighted combined) max / min CO₂ emissions in g / km ( combined / weighted combined) max / min Electricity power consumption in kWh / 100 km (combined / weighted combined) max / min Model MINI Fuel consumption in l / 100 km (combined / weighted combined) max / min CO₂ emissions in g / km (combined / weighted combined) max / min Electricity power consumption in kWh / 100 km (combined / weighted combined) max / min 1.8 – 1.5 2.0 – 1.7 10.2 10.8 1.9 – 1.7 2.2 – 1.9 10.2 10.8 1.9 – 1.7 2.1 – 2.0 2.3 – 2.2 2.0 – 1.8 2.4 – 2.2 11.3 1.9 1.9 2.4 – 2.1 2.1 – 1.6 41 – 35 45 – 40 234 248 44 – 38 49 – 43 234 248 43 – 39 49 – 46 53 – 49 46 – 42 54 – 50 260 43 43 54 – 48 47 – 37 14.8 – 13.9 MINI Cooper SE 15.9 – 15.2 MINI Cooper SE Countryman ALL4 – 1.7 – 40 16.8 – 14.8 14 – 13.1 MINI John Cooper Works GP 7.4 – 6.0 169 – 137 ROLLS-ROYCE Rolls-Royce Phantom incl. EWB Rolls-Royce Dawn Rolls-Royce Cullinan Rolls-Royce Wraith Rolls-Royce Ghost incl. EWB Rolls-Royce Dawn Black Badge Rolls-Royce Cullinan Black Badge Rolls-Royce Wraith Black Badge Rolls-Royce Ghost Black Badge 14.5 – 14.4 16.3 – 16.1 15.0 330 – 328 372 – 367 341 16.0 – 15.9 365 – 363 15.0 16.3 15.1 16.1 16.2 343 371 343 367 370 – – 15.6 – 14.5 15.8 – 14.7 – – 14.9 – 13.8 16.5 – 15.9 16.3 – 15.8 16.1 – 15.4 16.7 – 16.1 – 13.8 13.7 16.9 – 16.3 25.2 – 23.5 – – 17.8 – 17.5 13.1 14.6 – 14.0 < 21* BMW X5 M and X5 M Competition BMW X6 M and X6 M Competition 13.0 – 12.8 296 – 291 13.1 301 BMW iX3 BMW i3 120 Ah BMW i3s 120 Ah BMW iX* * Figures are provisional and based on forecasts based on WLTP testcycle. – – – – – – – – BMW GroupReport 2020 Other Information BMW Group Ten-year Comparison BMW GROUP TEN-YEAR COMPARISON 365 DELIVERIES Automobiles 2 Motorcycles 3 PRODUCTION VOLUME Automobiles Motorcycles 3 FINANCIAL SERVICES Contract portfolio Business volume (based on balance sheet carrying amounts) INCOME STATEMENT Revenues Gross profit margin Earnings before financial result Earnings before tax Return on sales (earnings before tax / revenues) Income taxes Effective tax rate Net profit for the year 2020 2019 2018 1 2017 2016 2015 2014 2013 2012 2011 units units units units 2,325,179 2,537,504 2,486,149 2,465,021 2,349,962 2,259,733 2,117,965 1,963,798 1,845,186 1,668,982 169,272 175,162 165,566 164,153 145,032 136,963 123,495 115,215 106,358 104,286 2,255,637 2,564,025 2,541,534 2,505,741 2,359,756 2,279,503 2,165,566 2,006,366 1,861,826 1,738,160 168,104 187,116 162,687 185,682 145,555 151,004 133,615 110,127 113,811 110,360 contracts 5,981,928 5,973,682 5,708,032 5,380,785 5,114,906 4,718,970 4,359,572 4,130,002 3,846,364 3,592,093 € million 133,093 142,834 133,147 124,719 123,394 111,191 96,390 84,347 80,974 75,245 € million 98,990 104,210 96,855 98,282 94,163 92,175 80,401 76,059 76,848 68,821 % € million € million % € million % € million 13.7 4,830 5,222 5.3 1,365 26.1 3,857 17.3 7,411 7,118 6.8 2,140 30.1 5,022 19.0 8,933 9,627 9.9 2,530 26.3 7,064 20.3 9,899 10,675 10.9 2,000 18.7 8,675 19.9 9,386 9,665 10.3 2,755 28.5 6,910 19.7 9,593 9,224 10.0 2,828 30.7 6,396 21.2 9,118 8,707 10.8 2,890 33.2 5,817 20.1 7,978 7,893 10.4 2,564 32.5 5,329 20.2 8,275 7,803 10.2 2,692 34.5 5,111 21.1 8,018 7,383 10.7 2,476 33.5 4,907 BMW GroupReport 2020 Other Information BMW Group Ten-year Comparison 366 BALANCE SHEET Non-current assets Current assets Capital expenditure (excluding capitalised development costs) Capital expenditure ratio (capital expenditure / revenues) Equity Equity ratio Non-current provisions and liabilities Current provisions and liabilities Balance sheet total CASH FLOW STATEMENT Cash and cash equivalents at balance sheet date Free cash flow Automotive segment PERSONNEL Workforce at year-end 4 Personnel cost per employee 4 DIVIDEND Dividend total 2020 2019 2018 1 2017 2016 2015 2014 2013 2012 2011 € million 134,851 137,404 124,202 121,964 121,671 110,343 € million 81,807 90,630 84,736 73,542 66,864 61,831 97,959 56,844 86,193 52,184 81,305 50,530 74,425 49,004 € million 3,922 5,650 5,029 4,688 3,731 3,826 4,601 4,967 4,151 2,720 % 4.0 5.4 5.2 4.8 4.0 4.2 5.7 6.5 5.4 4.0 € million 61,520 59,907 57,829 54,107 47,363 42,764 37,437 35,600 30,606 27,103 % € million € million 28.4 83,175 71,963 26.3 85,502 82,625 27.7 79,698 71,411 27.7 69,634 71,765 25.1 73,183 67,989 24.8 63,819 65,591 24.2 58,288 59,078 25.7 51,643 51,134 23.2 52,834 48,395 22.0 49,113 47,213 € million 216,658 228,034 208,938 195,506 188,535 172,174 154,803 138,377 131,835 123,429 € million € million 13,537 3,395 12,036 2,567 10,979 2,713 9,039 4,459 7,880 5,792 6,122 5,404 7,688 3,481 7,671 3,003 8,370 3,809 7,776 3,166 120,726 126,016 134,682 129,932 124,729 122,244 116,324 110,351 105,876 100,306 € 99,647 98,901 101,178 100,760 99,575 97,136 92,337 89,869 89,161 84,887 € million 1,2535 1,646 2,303 2,630 2,300 2,102 1,904 1,707 1,640 1,508 Dividend per share of common stock / preferred stock € 1.90 5 / 1.925 2.50 / 2.52 3.50 / 3.52 4.00 / 4.02 3.50 / 3.52 3.20 / 3.22 2.90 / 2.92 2.60 / 2.62 2.50 / 2.52 2.30 / 2.32 1 The 2018 figures were adjusted due to the change in accounting policy in conjunction with the adoption of IFRS 16 (see Annual Report 2019, note 6 to the Group Financial Statements). In addition, prior year figures were adjusted due to changes in the presentation of selected items that are of minor importance overall. 2 Retail vehicle delivery data presented for 2020 is not directly comparable to such data presented for previous years. For further information on retail vehicle delivery data, please see 3 Excluding Husqvarna, deliveries up to 2013: 59,776 units; production up to 2013: 59,426 units. 4 Since the reporting year 2020, a new definition for workforce size has been applied (see Glossary). To enable better comparability, the value for 2019 was adjusted accordingly (2019 before adjustment: 133,778 employees). Comparison of Forecast with Actual Outcomes. For the timeframe including and prior to 2018, the share of the employees that are no longer reflected in reporting is about 7.5-8 %. 5 Proposal by management. BMW GroupReport 2020 367 Other Information Financial Calendar FINANCIAL CALENDAR 2021 2022 17 March 2021 BMW Group Annual Conference. Media Day 18 March 2021 BMW Group Annual Conference. Analyst and Investor Day 7 May 2021 Quarterly Statement to 31 March 2021 16 March 2022 BMW Group Report 2021 16 March 2022 BMW Group Annual Conference. Media Day 17 March 2022 BMW Group Annual Conference. Analyst and Investor Day 12 May 2021 Annual General Meeting 5 May 2022 Quarterly Statement to 31 March 2022 3 August 2021 Half-Year Report to 30 June 2021 11 May 2022 Annual General Meeting 3 November 2021 Quarterly Statement to 30 September 2021 3 August 2022 Half-Year Report to 30 June 2022 3 November 2022 Quarterly Statement to 30 September 2022 BMW GroupReport 2020 Other Information Contacts CONTACTS 368 BUSINESS AND FINANCE PRESS THE BMW GROUP ON THE INTERNET PUBLISHED BY Telephone + 49 89 382-2 45 44 + 49 89 382-2 41 18 Further information about the BMW Group is available online at: Fax + 49 89 382-2 44 18 www.bmwgroup.com E-mail presse@bmwgroup.com Investor Relations information is available directly at: Bayerische Motoren Werke Aktiengesellschaft 80788 Munich Germany Telephone + 49 89 382-0 INVESTOR RELATIONS Information about the various BMW Group brands www.bmwgroup.com/ir Telephone + 49 89 382-2 53 87 Fax + 49 89 382-1 46 61 is available at: www.bmw.com www.mini.com E-mail ir@bmwgroup.com www.rolls-roycemotorcars.com www.bmw-motorrad.com BMW GroupReport 2020 

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