BMW AG said its profit margin could dwindle to as little as 1% this year as weakening Chinese demand and fallout from the Middle East conflict take a growing toll on what had been Germany's most resilient automaker.
BMW now expects carmaking returns of 1% to 3% for 2026, down from as high as 6% previously, the company said late Tuesday. It cited a deepening slump in China and negative sentiment from the US-Israeli war on Iran, puncturing the view among many analysts that it was better positioned than rivals such as Mercedes-Benz Group AG thanks to its flexible electric-vehicle strategy.
The shares slumped by as much as 11.5%, the biggest intraday decline in almost two years. They were down around 27% this year through Tuesday's close.
Milan Nedeljkovic Photographer: Chris Ratcliffe/Bloomberg
Photo Credit: (Photo: Bloomberg)
BMW also announced an expansion of its 2026 cost-cutting program, triggering a one-time hit in the second half of the year. The company didn't say whether the measures would include job cuts, leaving open how far it will go as China's slowdown forces it into a deeper reset.
The lower forecast comes just one month into the tenure of Chief Executive Officer Milan Nedeljkovic, who took over in May from Oliver Zipse. The former head of production is tasked with overseeing the build-out of BMW's updated electric lineup, dubbed Neue Klasse, that cost billions of euros to develop. The payoff for that could be complicated by weakness in China, its biggest market.
The speed of the downturn in the East Asian nation caught BMW off guard.
Chief Financial Officer Walter Mertl said on an investor call late Tuesday the company's March guidance was based on stable sales of roughly 50,000 vehicles a month in China through 2025 and into 2026. By the first quarter, volumes were already down 10% from a year earlier, and the deterioration deepened in April and May, leaving sales through May 17.6% lower than a year earlier.
BMW had so far been on more solid footing compared to peers in the face of the difficult transition to EVs. Unlike Mercedes or Volkswagen AG, the Munich-based company stuck with a more flexible plan to make a range of powertrains well into the future, setting it up to better withstand disappointing EV demand and policy reversals in the US.
The warning shows that even BMW's more cautious approach to electrification is no longer enough to shield it from the deeper reset hitting Europe's premium carmakers. For years, German brands relied on China to absorb high-margin combustion-engine vehicles designed and built largely around their home manufacturing base.
That model is now under pressure as Chinese buyers turn more cautious, local brands move faster and the economics of exporting expensive cars from Europe become harder to defend. The accelerating negative trend in China in the second quarter particularly impacted non-electric cars, BMW said.
Philippe Houchois, an analyst at Jefferies, said recent Chinese weakness had fostered expectations of a profit warning.
"But not a margin reset of such magnitude," he said. "It seems to us that BMW could be rethinking a global assembly business model still largely based on exporting" cars with internal combustion powertrains from Germany.
Wake-Up Call
The company's "radical earnings cut" is a "wake-up call for the auto industry," JPMorgan analyst Jose Asumendi said in a note, with all European premium carmakers currently priced out of the compact vehicle segment in China. BMW is planning to start sales of its iX3 Neue Klasse SUV in China in November.
While China demand is declining, carmakers are also battling sluggish sales in Europe, where VW, Mercedes and Stellantis NV have already taken steps to cut production. BMW is expected to downsize its production footprint globally, but with a particular focus in Europe, said Asumendi.
BMW had already cut spending earlier this year in areas ranging from research and development to investments. The newer measures are designed to adapt to a "drastic downturn in market conditions," Nedeljkovic said.
The Chinese car market has further deteriorated in the second quarter, causing competition to become more intense throughout the Asia Pacific region, the company said. That's overshadowing growth in Europe and the US, it added.
The impact of the Middle East conflict is proving more damaging than BMW previously expected, both from higher energy prices and the deterioration in consumer sentiment around the world, it said. BMW now sees a significant decline in profit and free cash flow in the second quarter.
The automaker also expects deliveries to drop slightly this year, having previously anticipated flat sales. The dividend payout ratio and share buyback program will continue as planned.
The company plans to publish its quarterly results on July 30.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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