BMW - 120 Target Price - Omnium Capital

CAPITAL MANAGEMENT BMW 120 target price Stock price ( ) In 2020, despite the health crisis, the BMW Group sold 60% more cars than in 2010. Yet the stock is now trading at the same price as it was ten years ago. 140 120 Since 2015 and the diesel emissions scandal, governments have significantly accelerated the timetable for the transition to electric cars. For traditional manufacturers, this 100 69 80 60 40 acceleration has generated risks (risk of technological failure or commercial positioning, risk of compliance with new CO2 emission regulations), but also significant costs (R&D, plant transformations, etc.). 20 0 201 0 The hazards associated with this transition have coincided with multiple negative 201 1 201 3 Bloomberg Index Market Capitalization Number of shares Free float 201 5 201 7 201 9 2021 ETR:BMW DAX 30 41 billion 660 million 47% macroeconomic events, unusual in both number and nature, and this toxic combination has reached its peak with Covid. But for BMW, 2020 is also a pivotal year in two ways: Group sales continue to outperform the Chinese market, which has returned to strong growth momentum since May 2020. In 2018, BMW negotiated the purchase of half of the shares of its local JV partner: in 2022 the structure will change from 50/50 to 75/25. This operation will enable BMW to change dimension in China, the main growth lever in the global automotive market. The group has succeeded in its shift to electric vehicles: the group is emerging from its industrial transformation phase from the top, with a more convincing and profitable "electric" strategy. We are targeting a share price of 120 by 2022-2023. BMW January 25, 2021 1

Disclaimer The opinion expressed in this document is prepared and published by Omnium Capital Management. Each statement is based on verifiable facts and data. Nevertheless, our forecasts are based on numerous assumptions. Different assumptions could result in materially different results, in terms of company earnings and stock target price. Omnium Capital Management accepts no liability whatsoever from any claims arising from the use or distribution of this material. At the time of publication of this document (mentioned in the document title), Omnium Capital Management associates (the authors of this research) have bought this stock, or are in the process of buying it. BMW January 25, 2021 2

Summary BMW 120 target price The Chinese opportunity Pages 4-6 BMW’s electric transition Page 7 Performance of BMW vs. Automotive market Page 8 Performance of BMW vs. Premium segment Page 9 Historical financial and stock market data Page 10 BMW financial mapping: unadjusted results Page 11 Restated earnings Pages 12-13 Financial forecast Page 14 BMW January 25, 2021 3

The Chinese opportunity (1/3) In 2020, Asia represented 42% of the group's deliveries, compared to 20% in 2010. China, which represents 80% of the group's sales in Asia, will be the main engine of growth in BMW's results by 2022-2023. Sales split evolution 2010 Asia 20% Other 3% 2017 Other 2% North America 23% North America 16% Asia 42% Europe 40% China: BMW sales growth vs. Market Europe 54% 30% Car sales in China regained solid momentum After a 50% drop in Q1 2020 related to the pandemic (shutdown of all factories in Wuhan province, the main hub for local automobile production), local sales increased by 10% in Q2, 10% in Q3 and 11% in Q4. While the good start of the second quarter could be interpreted as a catching-up, the recent trend rather illustrates a return to a positive and lasting dynamic. For 2021, analysts expect 10% (10%) (30%) (50%) growth of 4% (source: China Association of Automobile Manufacturers). Q 1 BMW is well positioned to take advantage of the recovery in the Chinese market: between Q1 2017 and Q4 2020, the group outperformed the local market by 11% on average (graph opposite). BMW January 25, 2021 14 Q 3 14 Q 1 15 Q 3 15 Q 1 16 Q 3 16 Q 1 17 Market Q 3 17 Q 1 18 Q 3 18 Q 1 19 Q 3 19 Q 1 20 Q 3 20 BMW 4

Chinese opportunity (2/3) Foreign manufacturers who want to sell vehicles in China have historically had the choice between two systems: Import vehicles and pay 25% customs duty on the price of the vehicle (and consolidate 100% of the profits). Create a 50/50 JV with a local partner in order to produce locally to escape customs duties. In 2003, BMW created a JV with the Chinese group Brilliance Automotive (majority owned by the Chinese government). Since then, the “JV” proportion of BMW car sold in China have gradually increased, and the trend accelerated with the United States/China trade war: in 2020, 80% of cars sold by BMW in China were produced locally, compared to 59% in 2007 (breakdown opposite). In China, when BMW sells an imported car (mainly from the United States), it recognizes the proceeds of this sale (and profits) directly in its income BMW: car sold in China (in thousand) 800 ,000 Total 777 400 600 ,000 statement. On the other hand, when the sale results from the production of the JV, BMW records 50% of the operating profit linked to this sale directly in its financial result. 622 000 400 ,000 Thus, in 2019 (detailed results not yet available for 2020): BMW reported an operating profit of around 500 million on its Chinese import-related sales (189 000 vehicles). BMW recorded in its financial result an income of 918 million, 200 ,000 corresponding to 50% of the operating profits made by the JV BMW/Brilliance (which sold 536 000 vehicles). 0 This system will evolve from 2022 (precise date not communicated at this stage): in October 2018, BMW signed the purchase of an additional 25% share from its partner for 3.6 billion. Thus the interest sharing of the JV will increase to 75%/25% in favor of BMW. BMW January 25, 2021 Total 51 600 155 400 30 600 21 000 200 7 202 0 Impo rted Pro ducted (by J V) 5

Chinese opportunity (3/3) This transaction was concluded following measures put in place by the Chinese Along with the accretive impact on the group's results, this operation Communist Party to further liberalize the local market. If the “deal” has not yet actually been put in place, a change of direction by the Chinese authorities should have a positive impact on the group's image with analysts, who compare OEMs in terms of operating margins, which leads them to seems very unlikely: An increased economic openness to foreign industrial companies is one of undervalue BMW stock. Indeed, while BMW does not re-adjust its earnings, other manufacturers operating in China via a 50/50 JV (such as the main pillars of the ruling party's long-term strategy. Like Tesla, foreign groups already have the possibility of establishing Daimler) tend to report on adjusted operating results that include their share of profits. themselves locally “on their own”, an authorization which validates the logic of the BMW transaction. In recent years, Chinese protectionism has shifted towards the technological pillar, while leaving more autonomy to foreign brands. In the case of the automotive market, the Chinese government focuses on batteries, which must be supplied by a local supplier. BMW JV sources its supplies from CATL Chinese JV operating result ( billion) 3.00 1.84 (multi-year framework contract), the same supplier as Tesla. In China, in the medium term (2022-2023), BMW group car sales are expected to exceed one million units, a figure to be compared with the 725 000 sold in 2019 2019 and 777 000 in 2020 ( 8%). Based on the new consolidation scheme, and assuming that all volume growth is provided by the JV (local production): BMW will still record 500 million in operational profits on its imported vehicles. Being the majority in the JV, BMW will consolidate 100% of the sales and 2022-2023 50% operating profits of this JV. In 2/3 years, these profits could reach 3.0 billion (compared to 1.84 billion in 2019). Financial impact BMW will then transfer 25% of the profits of the JV to Brilliance, in the form of minority interests (charge within the financial result). 100% 2019 2022-2023 Operating result 500 million 3.5 billion Financial result 920 million ( 750 million) Net impact before tax 1.42 billion 2.25 billion Thus, operating profits in China will increase from 0.5 to 3.5 billion. Profits before taxes should go from 1.42 to 2.25 billion (chart and table opposite). BMW 63% Market growth (35%) Incremental effect on the JV which “captures” all the growth (while imports stagnate) Economies of scale January 25, 2021 Retrocession of 25% of the JV’s operating result. 6

BMW’s electric transition 2020 is a pivotal year for EVs. Globally, the adoption of electric powertrains is now a certainty. This adoption enables manufacturer to build clearer and less random long-term strategies. For BMW, 2017-2019 was a period of heavy investments, both in R&D and in industrial adaptation costs. The table below highlights the impact of these developments on the group's operating results: iX (launched in 2021) Estimate of BMW additional costs related to EV transition ( billion) 2017 2018 2019 2020 2021 2022 1.0 1.5 2.0 1.5 1.0 0.7 The group's electric models are now profitable. BMW CEO recently indicated that in 2021, the profits made on the sale of the latest full-electric models would correspond to 75% of those made on thermal vehicles, and that their profitability would be equivalent to 2025. In the short term, margins will be supported by sales of mild-hybrid and plug-in hybrid vehicles, the profitability of which is higher than those with combustion engines. Until 2018, BMW confined itself to declining existing models in electric versions. The group is now following a "voluntary" strategy based on launches designed for electricity (opposite). In i4 (launched in 2022) 2021, BMW plans to double its sales of full-electric models. Thus, the financial impact related to the EV transition is likely to dissipate. The negative impact on operating profit will drop from 2 billion in 2019 to 1 billion in 2021. In our 2022-2023 financial forecast (page 14), we consider an annual impact of 500 million. Thanks to this good management, BMW finds itself in a favorable position compared to other manufacturers: Fiat Chrysler (which owns Alfa Romeo, a competitor of BMW), unable to pursue a credible EV strategy on its own, chose to merge with PSA to mutualize development costs. Daimler is forced to rush its EV developments to the detriment of its margins: in 2020, the group complied in extremis with European CO2 regulations, thanks to an acceleration of its EV sales in December. BMW January 25, 2021 7

Performance of BMW vs. Automotive market Global auto sales: BMW vs. global auto sales à average outperformance of 4% per year 20% 15% 14% 14% 11% 9% 10% 4% 5% 6% 6% 5% 8% 6% 4% 5% 6% 3% 4% 1% 2% 1% 0% (5%) 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8 (2%) 201 9 (2%) 202 0 (10%) (8%) (15%) BMW (13%) Market Investment Argument Europe USA 15% 10% 5% 0% (5%) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (10%) (15%) (20%) BMW 20% 15% 10% 5% 0% (5%) (10%) (15%) (20%) (25%) 60% 50% 40% 30% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20% 10% 0% (10%) (20%) Market BMW BMW over/under performance China Market BMW BMW over/under performance 10% 45% 10% 5% 35% 0% (5%) 25% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (5%) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Market BMW over/under performance 15% 5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 15% 5% (10%) (5%) (15%) (15%) 2 01 0 BMW January 25, 2021 2 01 1 2 01 2 2 01 3 2 01 4 2 01 5 2 01 6 2 01 7 2 01 8 2 01 9 2 02 0 8