BMW’s share price is still sliding after shareholders were shocked by news it warned, again, about a big threat to profits because of twin blows from China.
Analysts believe the problem is serious enough to prompt BMW to take drastic action which could restructure even the basic German manufacturing base. The upcoming accelerating launches of so-called Neue Klasse models will be a plus point for BMW investors.
BMW’s once hugely profitable business in China is on the slide, while Chinese manufacturers are audaciously snatching mainly electric vehicle business away from the German champion premium brand in its home market.
The hugely ambitious Chinese manufacturers won’t be happy just winning EV business. They also believe they can make a big dent in German premium sales as BYD’s Denza and Yangwang, NIO, and Geely’s Zeekr and Xiaomi, and Xpeng crank up luxury contenders.
This third China-related profit warning in three years for BMW is also undermining the share prices of Mercedes and Volkswagen, with its upmarket subsidiaries Audi and Porsche , not least because BMW was thought to be the least likely German manufacturer to be seriously undermined by the China threat. The Chinese market is deteriorating, and competition is becoming more intense as manufacturers seek to hang on to market share.
New CEO in charge since May
BMW announced June 16 that it now expects profits for 2026 of between 1 and 3% after a previous forecast of between 4 and 6%. BMW said it will expand its cost-cutting program, which will lead to an unspecified cost in the 2nd half of 2026. BMW’s new CEO, Milan Nedeljkovic, has been in charge since May.
Reuters Breaking Views column described the profit warning as being of “unexpected magnitude”.
“Accelerated cost cuts are now on the agenda. The associated restructuring expenses will hurt the bottom line further in the second half of the year, before things get better – maybe,” said BreakingViews columnist Pierre Briancon.
Investment researcher Jefferies suggested BMW may have to consider drastic measures, including reshaping German manufacturing, in a research note entitled “Resetting the Business Model?”
“Many investors seemed to expect a warning due to sustained China market weakness impacting absolute EBIT (earnings before interest and tax) but not a margin reset of such magnitude. It seems to us that BMW could be rethinking a global business model still largely based on exporting ICE powertrain from Germany,” Jefferies said.
Jefferies rates BMW a “hold”.
Unexpectedly drastic
Berenberg Bank of Germany agreed drastic measures may be required because of the unexpectedly drastic nature of the problem.
“This could prompt a more profound strategic reset under the incoming CEO,” Berenberg Bank said in a statement.
“Management has left key strategic questions – such as those regarding footprint restructuring, product strategies or the potential use of BMW’s strong net cash position to strengthen shareholder distributions – for a September CMD (capital markets day), where the incoming CEO is expected to present a new strategic plan,” the bank said.
“Historically, BMW has focused primarily on products and growth; however, this time we expect a stronger emphasis on restructuring, particularly with regard to the company’s European/U.S. footprint balance in light of tariffs and the right-sizing of assets in China,” the bank said.
Berenberg rates BMW “hold”.
“Neue Klasse” models roll out at dizzying pace
Investment researcher Bernstein said this was a rare misstep for BMW. In a report, Bernstein said the new CEO is taking a fresh and more critical view of the assumptions that drove profit guidance, with China the most important problem. One big positive for BMW is the reception of its “Neue Klasse” models which “continue to roll out at a dizzying pace”.
“We estimate that vehicles that use NK technologies will account for some 91% of all the vehicles BMW produces in 2027 versus only 9% in 2026. These should deliver significant cost reduction and margin- enhancement opportunities from then on,” the report said.
Bernstein rates BMW “outperform”.
BMW’s Neue Klasse is a multi-billion-euro technological overhaul designed to reshape the entire vehicle portfolio. Focused on electrification and digitalisation, the program underpins over 40 upcoming models, starting with the electric iX3 SUV and i3 sedan.
Premature to buy the dip
Investment bank UBS said the warning slashed €2 billion ($2.3 billion) from profits, and put the medium term profit goal of 8-10% on the backburner. Given the share price weakness, should investors “buy the dip”?
“We think it would be premature to “buy the dip” as shares don’t look attractive on BMW’s (lower) earnings power; more reassurance on the CMD about medium-term goals and cash returns will be required to rebuild investor confidence. The read-across to (manufacturers) with high China exposure (Mercedes and VW) is clearly negative; however, one has to bear in mind that BMW had been the (manufacturer) most optimistic about China,” UBS said. BMW is “neutral” on BMW
BMW shares closed Thursday at €59.62, down 4% on the day and 13% lower since the profit warning.
