Torsten Schuessler - Head of Investor Relations Harald Krueger - Chairman Friedrich Eichiner - Chief Financial Officer

Horst Schneider - HSBC Arndt Ellinghorst - Evercore ISI Charles Winston - Redburn Partners Richard Hilgert - Morningstar Tim Rokossa - Deutsche Bank Fraser Hill - BofA Merrill Lynch Marc Tonn - Warburg Research Frank Biller - LBBW

Good afternoon, ladies and gentlemen. In the coming years, the automotive industry will be changing, bringing with it new opportunities and groundbreaking developments.

In this time of profound transition, the BMW Group is assuming an active role as an innovator and driver of change. We are making our contribution to ensure the successful development of this key industry in Germany and around the world.

Today I would like to focus on four topics: the current performance of the BMW Group, efficient dynamics, electric mobility and digitalization. To my first point, within a volatile business environment, we have set ourselves ambitious targets for 2015, a solid increase in Group sales, a solid increase in pre-tax Group result, an EBIT margin in the automotive segment in the range of 8% to 10%.

Our key financials for the first nine months of the current business year are as follows. The pre-tax Group result was over €7.1 billion, up 4.3% year-on-year.

This is the first time we have passed the €7 billion mark in a nine months period. The Group net profit reached more than €4.8 billion.

Again, this is a new record. At 9%, the EBIT margin in the automotive segment was within our profitability range of 8% to 10%.

These key financials are the result of the high demand for our products and services. In the first nine months of this year, we delivered a total of 1.64 million vehicles worldwide.

This is an increase of 7.5% compared with the same period last year. The Group, as well as the BMW and MINI brands and BMW Motorrad, each achieved new all-time highs for a nine months period.

The BMW brand remains the number one in the premium segment. X5, as well as the BMW 4, 5, and 6 Series, are also leading their respective segments.

This positive sales development continued in October. Once again, our sales are well balanced globally, with growth in all major world regions.

In Europe, our deliveries were up by more than 10%. In Asia, sales rose by over 4% year-on-year.

Growth in China stood at close to 2%. In the Americas, as well as in the U.S., the share of customers who decided to buy a BMW, a MINI or a Rolls-Royce went up 7%.

All of these figures show that we are on track to meet our targets for the full business year 2015. Nevertheless, there can be no doubt that our business environment is still facing many challenges and uncertainties.

The slowdown in growth momentum in China presents certain risks for the development of the global economy. These risks could also affect our business development and forecast.

However, our new models should offset this and will support our positive sales development. A few days ago, we launched the new BMW 7 Series and the second generation of the BMW X1.

Thanks to its intelligent mix of materials, the new BMW 7 Series is the world's lightest luxury sedan. On top of that, it is currently also the best connected vehicle in the world, in a nutshell pure modern luxury.

At MINI, the new Clubman just went on sale and the new MINI Convertible celebrated its world premiere at the Tokyo Motor Show a few days ago. This model is the next generation of the first and only premium convertible in the small car segment.

Rolls-Royce has announced a new model called Dawn. Now to my second topic, efficient dynamics: Over the past years, we have cut the CO2 emissions of our new car fleet in Europe by more than one-third.

We have completely realigned our model portfolio and our engine line-up. Because of this, we have achieved notable results in our current test cycles and reduced real consumption.

Today, our fleet stands at 130 grams of CO2 per kilometer. Customers can choose from 86 models within the BMW Group portfolio that emit less than 120 gram of CO2 per kilometer in the current EU test cycle.

An important element of efficient dynamics is our state-of-the-art diesel technology. Diesel is one of the cleanest and most efficient drive trains in the industry.

Without diesel power trains, we would not have been able to meet the strict CO2 limits in Europe. Many customers appreciate the advantages a diesel has to offer.

At present, our customers are not showing any changes in their buying behavior towards diesel. For us at the BMW Group will it remains a matter of course that we strictly adhere to the legal regulations and existing test cycles in every country.

We act according to the mandatory procedures and compliance guidelines we have established. As I see it, a company's corporate and leadership culture is also a crucial aspect in this context.

Allowing for discussions and open discourse, as well as a clear corporate compliance policy, is an important element to prevent fundamental misconduct. As a global business, the BMW Group operates in over 140 countries around the world.

Therefore, it is necessary to have common standards for technical systems in Europe and worldwide in order to provide a stable planning basis for manufacturers' investment decisions. With a uniform system, we would no longer need to meet different technical requirements in different regions anymore.

That is why we support the rapid implementation of new test cycles. This includes the new WLTP test cycle and the Real Drive Emission test procedure RDE.

Our customers know the value they get from our vehicles and their trust is the cornerstone of our business. So let's move on to my third topic.

We remain committed to pursuit in developing alternative drive trains. That is why we created the BMW i brand for electric mobility.

Today, one in four electric cars sold in Germany is a BMW i3. In the U.S., every sixth e-car is an i3.

In Norway, the i3 accounts for an impressive one in five BMWs sold. In China, customers are now exempt from paying sales tax on the i3.

This means new opportunities for us in China, one of the most important markets for e-mobility. We will invest further in our BMW i family and therefore we will launch another model under BMW i.

As previously announced, we are consistently transferring BMW i's innovative drive trains to our BMW series models. In 2016, we will launch plug-in hybrid versions in high-volume model series, namely the BMW 7, 3 and 2 Series.

The BMW X5 with eDrive has been available in the U.S. since early October and will be launched in Germany and further markets this month.

No other carmaker in the world offers customers such a wide range of alternative drive trains and highly efficient combustion engines. To my fourth topic, digitalization: The future of the automotive industry will be decided in the fields of vehicle connectivity and autonomous driving.

Digitalization is transforming our entire business model, from customer touch points to mobility concepts and services, as well as to digitally supported production. We want our customers to be able to make full use of their smartphone's features in the car as well.

Thus, we are going to integrate Apple's CarPlay and Google's Android Auto in our vehicles. Obviously, it is not in the interest of our customers to give third-party providers access to their data.

For us, the protection of our customer data is top priority. The digitalization of mobility offers an exciting potential for growth in our industry.

Over the past decades, the car has become a highly complex technological machine. So whether you want to offer mobility made in Silicon Valley or made in Bavaria, the same regulatory requirements and challenges apply to everybody.

Ladies and gentlemen, our focus at the BMW Group has always been on the long-term and will remain so in the future. In our strategy process, we simultaneously consider two time periods.

First, which operational actions can efficiently guide us up to 2020? Second and I would say this is the decisive question, what do we need to remain successful with our competitive environment in 2025 and beyond?

We are convinced that we have the right skill set at our disposal to shape the future of individual mobility. In doing so, we rely on our innovative strength and experience.

At the same time, we want to develop cutting-edge technologies for new products and tap into new business areas. All these activities follow our claim of being the leading provider of individual mobility and services in the premium segment.

Guided by a clear strategy our course towards the future remains stable and with confidence we will move the BMW Group forward successfully. Thank you very much for your attention.

Thank you very much, Mr. Krueger.

And now Friedrich Eichiner will give you an update on the financials of the BMW Group. Dr.

Eichiner, please go ahead.

Ladies and gentlemen, good afternoon from my side as well. The BMW Group reported higher sales, revenues and earnings for the first nine months in a challenging environment.

The company is right on track, as we continue to work hard to meet our ambitious targets for the full year 2015. Demand for premium BMW, MINI and Rolls-Royce vehicles remained strong in the third quarter.

Sales reached a new all-time high, with more than 545,000 vehicles and almost 34,000 motorcycles delivered to customers. This represents a 6.9% increase in automotive sales and a 16.3% increase in motorcycle sales, compared with the same period of last year.

This growth comes mainly from attractive new models. With BMW, the 2 Series, 4 Series and X models made the biggest gains.

With MINI, it was the 3-door and 5-door. As in the first half of the year, mature markets were once again the main sales drivers.

Our premium brands remained in high demand in European countries. In the year to the end of September, the BMW Group delivered more than 731,600 vehicles to customers, an increase of 10.3%.

The solid growth in the Americas also continued. Deliveries climbed 7% to more than 361,500 units after nine months.

This was primarily due to the U.S., which accounted for almost 296,000 units. The strong U.S.

dollar is ensuring the market stays attractive for foreign suppliers. As a result, competition in the market has intensified significantly.

The BMW Group also reported a solid increase in sales volumes in Japan. In China, the trend towards normalization continues.

Economic growth has slowed, with lower rates of GDP and auto market growth, as expected. At the same time, the turbulence on the mainland stock markets in recent months has dampened customer confidence.

Overall, we expect the economic situation in the market to stabilize at a lower rate of growth. In the first nine months, the BMW Group delivered almost 343,000 vehicles in Mainland China, an increase of 1.9%.

The BMW Group has proactively adjusted production in and for China based on a slower growth. We are also helping Chinese dealers respond to more intense competition through training and other sales enhancing measures.

The recently introduced revised 3 Series models did not impact third quarter sales in the Chinese market. However, we should see an effect from the fourth quarter onwards, also supported by the 7 Series launch.

Product momentum will improve even further in 2016, for instance supported by the new BMW X1. As one of the leading manufacturers in the premium segment, we remain confident about medium and long-term economic development in China.

Chinese customers are discerning. They are brand conscious and appreciate the quality of premium products.

Thanks to our balanced global positioning and young and attractive products, the BMW Group anticipates further sales gains in the fourth quarter. Worldwide sales growth significantly boosted Group revenues for the third quarter.

Revenues reached almost €22.35 billion, up 14% from the same period of last year. Currency tailwinds had less impact than in the first half of the year.

Adjusted for these effects, revenues were only 7.7% higher. Group pre-tax earnings for the third quarter totaled €2.26 billion, an increase of 12.8% over the same period of last year.

The financial result improved significantly year-on-year due to a lower negative impact from market valuation of derivatives. The BMW Group's pre-tax earnings for the first nine months reached €7.11 billion, with an EBT margin of 10.6%.

Now, I would like to talk about our capital expenditure and development activities. The BMW Group remains committed to its investment strategy.

We are securing our competitive position by expanding our portfolio and business areas. In the year to the end of September, the company invested a total of €3.66 billion in equipment and products.

Investment was mainly focused on recently launched models the 7 Series, the X1, the MINI Clubman and the 2 Series Gran Tourer. With significantly higher revenues, the CapEx ratio for the first nine months stood at 5.4%.

Investment in property, plant, equipment and intangible assets for the full year is expected to remain on par with last year. We anticipate higher capital expenditure in the fourth quarter due to the usual seasonal effects, which are likely to have a greater impact than in the final quarter of 2014.

The CapEx ratio for the full year should be in line with our long-term target of below 7% of revenue. Research and development spending for the year to the end of September totaled €3.69 billion, an increase of 15.3% year-on-year.

Development costs were higher due to the series ramp-up of new models, like the 7 Series with the new rear wheel drive architecture. Vehicle architecture for the compact series also generated development costs.

These factors resulted in a higher ratio of capitalized development costs. Additional R&D activities focused on lightweight construction, connectivity and alternative drive trains.

The R&D ratio was 5.5%, the same as the prior year period. We expect the ratio for the full year to be on par with that of last year.

BMW Group liquidity stood at €10.9 billion at the end of September underlining our solid financial position. Let's now take a look at earnings performance in the individual segments, first the automotive segment.

The company delivered almost 35,400 more vehicles to customers than in the third quarter of 2014. The segment's third quarter revenues reached €20.97 billion, an increase of 15.6% year-on-year.

Adjusted for currency effects, revenues rose by 8.6%. Automotive EBIT for the third quarter totaled €1.91 billion.

This represents an increase of 12.7% over the previous year, with an EBIT margin of 9.1%. Profitability was also affected by cost calendarization.

A disproportionately large share of project costs for the full year will be posted in the fourth quarter. The automotive segment earned revenues of €61.51 billion for the year to the end of September.

This is an increase of 15.6% over the same period of last year. Segment EBIT for the first nine months totaled €5.53 billion, which represents an EBIT margin of 9%.

This figure is within our target range and therefore meets our benchmark for segment profitability. The increase in revenues and earnings was driven by higher sales volumes.

Among the X models, larger-class vehicles made gains also in view of the X1 model change. The new 2 Series models also fueled growth.

Pricing stabilized worldwide in the third quarter, compared with the second quarter. The European markets in particular performed slightly better, whereas increased competition in the U.S.

impacted pricing. Personnel costs for the nine months to the end of September were higher year-on-year.

The automotive segment workforce increased by 5,947 employees. New hires were made throughout the global production network in development and IT, as the company strengthens its expertise in future technologies related to digitalization.

Changes in currencies and raw material prices contributed to positive earnings development in the third quarter. For the full year, we expect a tailwind in the mid three-digit million range.

In the third quarter, the automotive segment's financial result improved year-on-year. The previous year had been impacted by an impairment of the investment in SGL Carbon.

The market valuation of derivatives was also less negative than in the third quarter of last year. Fourth quarter costs will be higher due to seasonal factors, which will dampen earnings.

However, we expect an increase in sales towards the end of the year. The automotive segment's financial situation continued its positive development in the first nine months of the year.

As of September 30, inventories rose in preparation for the introduction of new models. However, working capital increased by about €900 million less than in the same period of last year.

As a result, free cash flow amounted to €3.38 billion for the first nine months. We expect that the free cash flow will be lower in the fourth quarter due to the high level of costs and investment, as well as the resulting payment to suppliers.

Nonetheless, we are maintaining our target of more than €3 billion for the full year. At the end of the third quarter, net financial assets totaled €14.77 billion.

That brings me to the financial services segment. Solid growth in this business area continued in the third quarter.

More than 420,600 new contracts were concluded with retail customers, 9.9% more than in the same period of last year. A total of more than €1.22 million new contracts were concluded with retail customers in the year to the end of September.

The new business volume in 2015 stood at €37.28 billion. Business expanded in China and the U.S.

in particular, boosted by positive currency translation effects. The new business volume climbed 24.3% compared to the previous year.

Adjusted for currency translation effects, business grew by 14.4%. Leasing contracts accounted for around a third of new business.

From January to September, the contract portfolio with retail customers increased by 7.5% to €4.23 million contracts, mainly due to growth in the Asia Pacific region. The Americas region and Middle East/Africa and Europe also reported solid growth.

The total portfolio of the EU Bank posted growth of 2.2%. The segment penetration rate, the percentage of new vehicles financed or leased by financial services, climbed to 46.1% for the first nine months of the year.

This represents an increase of 4.3 percentage points over the previous year's figure. Both third quarter and nine-month revenues and earnings reflect this dynamic growth.

From January to September, revenues increased significantly also due to currency translation effects, to reach €17.83 billion. Pre-tax earnings for the segment stood at €1.52 billion at the end of September, a significant increase of 12.1% year-on-year.

The risk situation remained stable for BMW financial services in the third quarter. Compared with the second quarter, pricing in the central European used car markets increased slightly.

In North America, it remained largely unchanged. Credit risks did not show any substantial changes either.

The credit loss ratio for the entire portfolio is low, at 0.35%, and below last year's figure. BMW financial services takes a comprehensive approach to risk management and is making adequate provisions to hedge business risks.

Residual value and credit risks are expected to remain comparatively stable for the rest of the year. Dynamic demand for financial services products is likely to continue overall.

The stable risk situation should support continued growth for BMW financial services. Let us now take a look at the motorcycles segment.

BMW Motorrad continued to perform well, with record sales, revenues and earnings. The brand is benefiting from its expanded line-up and positive growth in the market segment.

In the first nine months, BMW Motorrad delivered more than 112,400 vehicles to customers, an increase of 12.2%. BMW Motorrad once again reported double-digit growth in its home region of Europe.

The recovery in Southern Europe in particular generated strong sales growth. The European motorcycle market in the segment above 500cc grew by 9% in the year to the end of September.

Over 60% of our deliveries are to customers in Europe. Overseas markets also saw positive development.

In the United States, for example, BMW Motorrad reported solid sales growth, with the delivery of almost 13,370 motorcycles. Revenues for the first nine months rose 19.9% to €1.64 billion.

BMW Motorrad benefited from currency translation effects and positive market environment, as well as higher sales volumes. EBIT for the same period climbed 87% to €273 million.

The segment's clear focus towards customer demand and strategic portfolio expansion are clearly bearing fruit. However, due to the seasonal nature of the motorcycle business, BMW Motorrad can expect a weaker fourth quarter.

Ladies and gentlemen, the BMW Group is on track to meet its guidance, targeting new all-time highs for sales, revenues and earnings for the full year. Assuming that the market environment remains stable, we confirm our targets for 2015: a solid increase in Group earnings before tax; a solid increase in sales, with significantly higher revenues in the automotive segment and an EBIT margin between 8% and 10%; a solid increase in sales of BMW Motorrad; in financial services, the return on equity is expected to be on par with last year and therefore above our target of at least 18%.

We are working hard to reach these targets, though we are faced with challenges in a number of markets. Costs will also be higher in all areas of the Company in the fourth quarter.

We also expect capital expenditure to be higher through the end of the year. Continued global economic and political volatility could, of course, have a negative impact on business development.

This also applies to the continuing and significant normalization of the Chinese market. We pursue our ambitious annual targets with as much vigor as our long-term corporate goals.

The BMW Group is currently conducting a strategic realignment to ensure the Company's future competitiveness. A high level of profitability is an important aspect of this.

It allows us to make the necessary investments for further growth and to establish new business areas. We will continue to offer our customers attractive products and services, as well as strategically position ourselves in the forefront of our industry.

This approach will enable our future success. Thank you.

Thank you very much, Fritz Eichiner. Ladies and gentlemen, now the line will shortly be open for questions.

Please wait for some technical advice.

Thanks very much. It's Horst from HSBC.

I have got three questions, please. First of all, I'm still puzzled about the outlook for Q4.

I mean you have stated very clearly that the costs will be higher in all segments in Q4, but at the same time you have got probably improving pricing, better FX gains, and maybe also the mix by the 7 Series improves a little bit. So therefore my first question is I mean how should we think about Q4?

Will that be, as in the previous year, the weakest quarter in terms of margin or have you seen the bottom finally in Q2 this year? So that's number one.

Then, I mean second question is on 2016 already a little bit. I mean you mentioned also that you launched the X1, the 7 Series, and at the same time you have also then the little bit weaker momentum probably on the 3 and 5 Series and X3.

So I want to know, you expect despite of that still solid growth in 2016 or it's too early to talk about that? And then the third question is again on R&D.

I just want to know if that is something that you expected all the time. I was so far always assuming that you stay in the range of 5% to 5.5% in terms of R&D to sales, but now since you say you are on the same level as 2014, it means that you end the year probably with a ratio of above 5.5%.

So maybe you can specify that a little bit.

Okay. Thank you very much, Horst.

I think we'll start with Mr. Eichiner.

Fritz, please go ahead.

Hi, Horst. So I think you made already a lot of points and I really agree with what you said.

So it's true we are expecting higher costs in quarter four and you are aware that many projects in R&D are finalized in the final quarter, in Q4 and then that is one of the reasons that we have a kind of a ramp-up in costs. That's something we experienced now over the last couple of years, and we are expecting the same development based on our plans for this year.

So there's a certain cost burden coming in on your question about pricing, on the pricing side, we think it should be fairly stable because new cars are contributing now more than in the third quarter. So the 7 Series will play a role.

X1 is ramping up and new MINI models do the same. Having said that, that means that we are expecting a good volume in the fourth quarter as well that should offset the cost to a certain extent and pricing, as I said, stable.

So, overall, I think we will see a similar development than last year. I don't see that the margin will improve in the fourth quarter.

That is from my expectation not the case because, as I said, fourth quarter always has a highly dampening effect from costs. And overall, I hope it contributes as much that it will allow us to achieve our guidance targets.

So that's what I can say today. I would think, as is the norm, positive effect from FX is expected, but that's nothing new for you.

You are aware of all those elements in our EBIT Bridge. Well, talking about 2016 is really a bit early, and I ask for your understanding.

First we have to make our numbers for 2015 before we talk about 2016. So far, we don't see that the growth momentum of BMW should stop in 2016.

That's the only thing I can tell you, and that is based on our product portfolio development. That's the only thing I can say so far financials as I said, too early.

R&D, yes, you're right. We have actually a peak in R&D spending.

That has to do with the product portfolio development and, as already mentioned, higher capitalization effects coming from the 7 Series, for example, played a role this year. So at the end of the day, we think we are coming close to the range 5.5%, but it could be that, as we said, it's more at a level of last year, which would be 5.7%.

So anywhere in that territory should be fine, and I think that's a solid guidance.

Just quick add-on, when you say it will not improve the margin in Q4, you mean that year-on-year or versus Q3 this year?

I was talking Q3, because you mentioned whether you should think about that this was turnaround now. And we don't see that the margin is going up Q4 compared to Q3, and I don't think it's going up compared to Q4 of 2014 either.

All right that's clear. Thank you.

Thank you very much, Horst Schneider. Next question, please.

Yes. Good afternoon, everyone.

There are two questions, more on the strategic side. First one, for Dr.

Eichiner, I wonder – and you've talked about this before whether you can confirm that given the upcoming challenges over the coming years and you're now a bit further ahead in your strategic thinking, whether you can over time for the next, say, five years or so really stay in your R&D and CapEx planning ranges, i.e., 5% to 5.5% cash R&D ratio and below 7% CapEx, or whether there's a risk that these might move up. And then one question for Herr Krueger you're now doing all your strategic work, and I wonder how you're integrating or thinking about shareholder value creation in the upcoming 10 years in all the work that you're currently conducting.

And I'm asking that because I'm a little bit concerned that we will hear a lot of buzzwords, but very little tangible planning assumptions and facts for shareholders to see how you will create value, moving forward. Thank you.

Good. Thank you very much.

I think we'll start with Mr. Eichiner and then Mr.

Krueger. Fritz, please, go ahead.

Well, Arndt, hello. So I think the basic element in the ratios is the topline, so we have to look at revenue development.

That is clearly part of the ratio. And as long as our assumption is valid that BMW with the product momentum, with the portfolio development we have planned to undertake going forward, will generate growth on the volume and revenue side.

As long as this is the case I think the ratio should be fine, because growing revenue would allow us to grow, for example, our R&D spendings accordingly. If this would not be the case, then maybe we would have to think about the ratios.

So far, as I mentioned, we think this is something we should achieve going forward. And we need more spendings on the R&D side because, as you know, regulation sets up tough requirements for us all around the world, and the latest discussion on diesel and so on and so forth, this will be a burden that will not go away, maybe will be even harder going forward.

So you need room to maneuver. That means growth on the revenue side and then ratio should be fine.

That's how we look at it and that is reflected in our long-range plans as well.

Thank you very much. Mr.

Krueger?

Arndt, just as I mentioned before, in our strategy process we are consistently approaching simultaneously two time periods. The one is until 2020, where we clearly focus on operational excellence.

How can we improve the business? What can we do better?

How can we earn the money which is important to invest into the future? The other part is what is required to remain successful beyond 2025, which is where our businesses and the automotive industry is changing and we need to do things both parallel, so operational excellence clearly focusing on our profitability and on the other side investing at the right time into the future for future competitiveness.

And that's what we will ensure in our strategy.

Thank you very much. Next question, please.

Thank you. Hi.

It's Charles from Redburn. Good afternoon, a couple of quick ones and then just a strategic one.

Given that last year in the fourth quarter I think that there was an element of the SG&A spend included some of the payments you made to the Chinese dealers to help them out, if those payments are not repeated in the fourth quarter this year, would it be right to actually potentially expect a decline in SG&A in the fourth quarter or will some other cost offset that potential decline? And then just quickly on production, fourth quarter production clearly will be below sales again.

That's normal, as we've seen in the past few years. But would the fourth-quarter production be above or below where we were in the second quarter?

That would be a useful guide. And just very finally, has anything changed in the comments we've seen from the EU in particular in recent weeks about RDE testing and things?

Has anything materially changed in the testing or regulatory environment on emissions that would have changed your thinking or changed your expectation about costs for that? Thank you.

Thank you very much, Charles. So we'll start with Mr.

Krueger and then Mr. Eichiner.

I would like to start with the EU testing cycle first. The BMW Group clearly supports the introduction of new regulations to bridge the gap between the so-called Real Driving Emissions and the test bench, and this will create clarity for the consumer and the industry.

And the targets are definitely highly ambitious and will require significant investment and development efforts, but we definitely focus on that. We will fulfill the legal rules and will definitely support what is on the table.

Nothing has changed there, so far. Secondly, the questions on the production below sales in quarter four it will be below the sales figure, which is the normal procedure because quarter four always is in some countries on the sales side the highest, thinking like the U.S.

for example. And we sometimes have also production changeovers over Christmas, where we stop production for technical reasons, for preparations, for maintenance.

So production is normally in the fourth quarter below sales.

Okay. Thank you very much.

Last part of the questions was about Q4 payments to China dealers. Fritz Eichiner?

Well, basically the cost issue in Q4 is more an issue of cost in R&D and so on and so forth. It's not so much an issue of dealer payments.

The dealer bonus payment is part of our bonus arrangement with the dealers. If they meet the targets we've set up for quarter four then we will pay a bonus.

But that's already calculated into our guidance and expectations. It's nothing extra.

Sorry. Can I just very quickly come back on the production question?

Would it be above or below what you did in 2Q? Sorry.

I understand it will clearly be below sales, but obviously 2Q was quite a bit lower than 3Q and I'm just trying to get an idea as to where 4Q sits between those two ranges. Thank you.

So, thank you very much. That is not so easy, but…

I need to check the details, but it should be on the same level as maybe Q2, because Q2 and Q4, Q2 is normally for production wise including some periods where we move into the summer, and Q4 is for preparing on the one side sales in Q4 and on the other one for Q1 next year. So, overall, it looks like it might be on the same level, but I need to check the details really, so sorry.

Thank you.

Okay. Thank you very much, Charles Winston.

Next question, please.

Thanks for taking my question. I was curious if you could talk a little bit more about China, please.

I understand that the measures have been taken to correct inventories over there and that things are kind of the new normal at this point but given the degree with which there are these issues of party members and having some type of scrutiny over how much they're spending, what kind of wealth they have, I'm curious to know has the strategy in China really changed any and has there been more of a slowdown in volume? And if you could maybe talk a little bit about how it is that you go about determining how much is actually produced in China, how much is imported from Germany into China and what's the distribution point dealership strategy going forward over there, if you could be a little bit more detailed on what the strategy's going to look like going forward.

Thank you very much, Richard. Mr.

Eichiner, please?

Well, many questions. So I'll try to answer as much as possible.

So, first of all, of course we corrected inventories because you have to see we are planning our production based on sales forecasts or expectations. So we are not doing it in a way that we first produce and then think about selling.

No. It's all based on sales forecasts for the coming period and then we produce.

Of course, we have a longer lead time for production coming out of Germany, so that was - as the market slowed down significantly more than expected in the first half of the year, we had to correct. So that's what we did.

So we adjusted production and now the inventory level should be in a better balance. Having said that, in the meantime we had to ramp up because the new cars are coming now.

So if you think about the locally produced 3 Series, the 3 Series experienced a facelift, Lifecycle Impulse, and we had to run out the pre-facelifted cars now and bringing in the new ones. 7 Series had to be ramped up.

MINIs had to be ramped up. So that is something that played a role so far and will play a role in the fourth quarter, where we want to sell them off.

So that was the reason why production was higher in the first three months - first three quarters and now production should be significantly lower in the fourth quarter and with an influence on working capital. So that's how we look at it and that's how it's managed.

So the share of the locally produced cars is fairly 60%, 40% are roughly imported. So that's the ratio we are working on those days.

Now, you asked again about the strategy in China, whether we have to change the strategy. I think to a certain extent we have.

Why? Because the normalization is taking place, has taken place and we are confronted now with a slowing down demand, with a normalization of pricing and things like that.

And we have to take care that the business model there is still robust and sustainable and that means we have to work a lot with dealers. They have to change their models.

In the past, they were only focused on new car sales. This is now a bit more stressful, as the competition is tougher and we have to build up additional pillars for demand to generate a solid income stream in the after-sales area, in the used car field with financing products and things like that.

So that is something where we have to consider changes. And the Internet is playing more and more a bigger role in China as well, just to mention a few challenges we are focusing on.

Thank you.

Thank you very much, Richard. Next question, please.

Yes. Thank you very much for taking my questions.

There would be two, please. The first one is on your mix and pricing.

If I remember correctly, you expect that not only sales momentum will improve but also the mix, with the 7 Series and the X1 introduction and so on and so forth. It's probably a bit too early to draw a real conclusion here, but could you share perhaps some thoughts on the initial reception of the 7 Series in the market when it comes to pricing, for example, versus the S Class in China, where it was recently lagging a bit, if I understand that correctly?

And then obviously on the same point, Mercedes is starting to talk very positively on the E Class obviously, and I understand very well that that is a segment below the 7 Series usually, but it seems to have a lot of the technology features when it comes to autonomous driving and connectivity capability, for example. Do you expect this to add more pressure on the new 7 Series next year and then obviously also on the older 5 Series, going forward?

And then the second question just - sorry for being a pain - coming back to that. But with all the costs and thoughts that you just discussed about for the final quarter, can you actually rule out that you will be below your 8% to 10% margin corridor in the automotive segment in Q4?

Thank you.

Thank you very much. This question will be answered by Mr.

Eichiner.

Okay. Now, let me start with mix and pricing.

So, basically, we've seen a slight improvement of mix in the third quarter, with strong sales especially of X products. The 7 Series sales were not yet reflected heavily in the third quarter, but they should come in now in the fourth quarter and going forward.

Now, pricing effects of 7 Series versus S class, it's too early to talk about this. So far, what we see is that the 7 Series is very well received.

We are happy with the tests, with all the information on the media and the feedback from many, many customers. So it gives us every confidence to believe that the 7 Series is a great product and will deliver what we are expecting.

So that's what we know so far. Now, your question about margins, basically, we are guiding the whole year that it's 8% to 10%.

We are not guiding quarters, so I cannot give you a number for the fourth quarter.

Thank you very much. And the next question, please.

Good afternoon. It's Fraser Hill from Bank of America.

Just two questions from me, actually, a little bit of clarification. On the pricing side of the equation, I think at the Q2 stage you moved your expectations for the year to 50 to 100 basis points of a headwind.

What are you saying today? You're talking about sort of stabilization into Q4.

Is that kind of sequentially relative to where pricing was for you in Q3 and therefore are we still in this 50 to 100 basis points range, or is pricing actually a little bit better than maybe you thought at Q2? And then, on the other cost changes, looks as if the step-up in that this year for the auto division is going to be similar to last year, sort of €600 million or so.

Should we be expecting higher numbers in the next couple of years, given the challenges you're talking about, the technology challenges and other factors, or have you got mitigating savings against those? Just some idea of the direction of that.

Thank you.

Thank you very much, Fraser. Mr.

Eichiner, please?

Well, I think the pressure on pricing came already in the first half of the year and it should now stay on that level in the fourth quarter. And in the end of the day, I think it is definitely in this range of 50 to 100 basis points.

So the burden is more or less materialized, if you want. And as I said, we are not expecting further deterioration in the fourth quarter.

The reasons are the good product momentum that is coming in, so that should at least stabilize the situation, but are not expecting big improvements same point in time as the volume of the fourth quarter is high. So that is how we look at pricing.

Then, your question about the cost changes, I have to refer to what we said already and what Harald Krueger said. I mean we try to really manage our cost base going forward and adjust in order to protect our profitability targets, but that is one element to it.

The future costs coming out of strategy number one are levelling out, but you know we are in the middle of a new strategy discussion and it's not yet clear what is coming out of this. So it's a bit early to look too far into the future, so I think we should be able to tell you more about this in the first quarter of 2016.

So, ladies and gentlemen, I think we have time for two more questions. Please.

Yes. Good afternoon.

Marc Tonn from Warburg Research. I just have also a question a bit regarding 2016.

I assume that given your very long-term hedging with regard to foreign exchange that you will probably not have seen, let's say, all the benefit from the depreciation of the euro compared to dollar and renminbi in the current year. But if you can give us some kind of, let's say, feeling on how much more there might be for 2016 and 2017, if spot rates remain where they are.

Thank you.

Thank you very much, Marc. Fritz?

Well, as we said, a bit too early to talk in detail about 2016, but you asked about the FX effect and basically what I can tell you is it should not be a major headwind going forward into 2016.

Thanks.

Next question, please.

Yes. Hello.

Thanks for taking my question. Actually, it's three quick ones here.

The one is based on the outlook. Here you talked about a tougher competition in U.S.

I was wondering what happened here in the U.S. Is it a special BMW thing or is the whole market a bit more competitive, and what does that mean for the margins?

The other thing is on the diesel drive trains. Maybe you can give us an outlook here what your expectation is in the share or ratio of diesel engines in the next couple of years, not talking about Volkswagen or BMW, just talking about the whole market, especially in Europe.

And the other thing is also, market wise, what is your growth expectations for the Chinese market in the next couple of years, and especially for the premium market against the mass market?

So thank you very much, Frank. We'll start with the diesel question and with Mr.

Krueger.

First of all, as I mentioned before, we don't see any change currently in the customer behavior of not buying diesels. So currently we see a pretty stable diesel demand, but it's on the other side quite early to say because some of the orders normally have a run rate of two or three months ahead, so maybe in the next weeks we'll have some more knowledge about that.

To give you some overall figures, in Europe I believe the BMW Group is selling around about 80% of its new car sales are diesel. 73% are in Germany and in the U.S.

it's 6%. So in the U.S.

it represents approximately around 20,000 vehicles and that percentage is still not a high number for, compared to the U.S. market, compared to what we sell in the United States.

So that's the overall picture of the diesel in Europe and the U.S. So, first feedback so far, we haven't seen any impact from the customers on not ordering diesel.

Thank you very much, Mr. Krueger, and the second part will be answered by Mr.

Eichiner.

To your question about the competition in U.S. and expectation for China, both is related to each other.

So what we've seen so far is as the Chinese market was slowing down and exchange rate was more favorable to all OEMs, so everybody tried to get the utmost out of the U.S. market.

I mean that was something we've seen. The market is going up to 17 million cars this year, that's at least our expectation, which is a peak.

And therefore it is very competitive, because everybody of course tried to compensate a bit the shortfalls in the Chinese market. That's the reason why U.S.

is so competitive those days. Compensating China and favorable exchange rates are driving it.

That's what I'm saying. Now, growth expectations for China, we always said that double-digit growth rates are not sustainable, because it is running into an exponential function and that is not something that will materialize.

And we already guided that our expectation is that the market will come down to 5%, 7% average growth rate in the premium sector. That is our long-term expectation.

It came faster than we thought. That's of course part of the 2015 story.

But as I said, long-term, we think it will be a 5%, 7% growth market in the premium segment. End of Q&A

So, ladies and gentlemen, thank you very much for joining us today and we wish you all a pleasant day. Bye, bye and thank you very much.