China market lost, BMW’s earnings guidance plunges, stock price tumbles to over five-year low!

BMW’s profit warning has again exposed the long-standing structural difficulties of the European auto industry to the market.

On Tuesday night, BMW announced a sharp downgrade of its 2026 car business EBIT margin target from 4%-6% to 1%-3%, expects full-year pre-tax profit to fall by more than 15%, and revised vehicle delivery expectations from “flat” to “slightly declining.” The company cited persistently declining sales in China and the Asia-Pacific, as well as the Iran war driving up energy costs, as main reasons. BMW also announced an increase in cost-cutting efforts, predicting a one-off negative impact in the second half of 2026.

The news triggered an immediate market chain reaction. After the opening of European stock markets on Wednesday, BMW shares plunged over 11% at one point, down about 7% midday, hitting the lowest level since late 2020. Other major European auto stocks—Mercedes-Benz, Volkswagen, Renault, Stellantis—also came under pressure, with the sector collectively weakening.

Independent auto analyst Matthias Schmidt told Reuters that this warning is “just the tip of the iceberg,” and other carmakers are “unlikely to be spared.”

This is already BMW’s third profit warning in two years. Deutsche Bank estimated that the new guidance means BMW's operating profit expectations will fall by about €3 billion. Citi analysts believe that as negative structural industry trends persist and EU regulation continues to put pressure, BMW “lacks an obvious positive equity narrative” and its undervalued state may endure.

China Market Continues Bleeding, Becomes Biggest Performance Drag

Although BMW listed multiple sources of pressure, the persistent weakness of the Chinese market remains the core issue. In its statement, BMW clearly stated, “Sales growth in Europe and the US cannot offset the sales decline in China and Asia-Pacific,” marking one of the first cases among major European carmakers to disclose substantive impact from China’s market weakness on 2026 performance.

In the first quarter this year, BMW’s global deliveries fell 3.5% year-on-year, with European sales still growing by 3%, while sales in China dropped 10% year-on-year to 144,000 units. The proportion of BMW’s global sales from China has also fallen from a peak of 33.5% to 25.5%.

Fundamental changes in the competition landscape have made the issue more complicated. Over the past twenty years, BMW, Mercedes, and Audi dominated the RMB 300,000–600,000 price range thanks to brand premium, but this segment is now the fiercest battleground for Chinese new energy brands. To maintain sales, BMW launched discounted promotions on 31 models in the first quarter, with flagship electric vehicle i7 offering up to RMB 300,000 off, rapidly eroding its margin.

There is a deeper concern: lagging in the transition to electrification.

Data shows China’s new energy vehicle penetration rate has exceeded 50%, whereas in BMW’s China operations, new energy models account for only about 6% of sales, a clear misalignment with the market trend. Matthias Schmidt noted that Chinese domestic brands are rapidly eating into foreign carmakers’ lucrative high-end market share, warning that as China’s domestic market remains weak, Chinese carmakers may further intensify their offensive in the European market to offset falling domestic demand.

Iran War Drives Up Energy Costs, Consumer Confidence Hit

Aside from China, BMW listed the Iran war as another major source of pressure. The company said the war has caused energy prices to rise, not only increasing production costs but also “having a negative impact on consumer confidence in markets globally.”

Analysts from Deutsche Bank and Jefferies both said the downgrade was beyond expectations. A Deutsche Bank analyst stated in a report that BMW previously enjoyed a "robust and reliable" reputation among its peers; this profit warning has damaged that image, and “left more questions than answers” in the conference call, expressing concern about the lack of a comprehensive update on BMW’s structural overhaul and cost control.

New CEO Faces Pressure Test as Soon as He Takes Office; Capacity Cuts May Be Under Consideration

This profit warning marks a tough start for BMW’s new CEO Milan Nedeljkovic, who just replaced longtime head Oliver Zipse last month and, only about a month into the role, must now face this pressure test. He stated the company needs to realign its organization based on “drastically worsening market conditions” and further accelerate cost reduction and efficiency measures.

The market is closely watching BMW’s next moves.

Jefferies analysts expect this restructuring will focus on BMW’s domestic German business and may accelerate localization in China and North America to protect profit margins. JPMorgan analysts anticipate BMW may announce a 10%-15% capacity cut at its upcoming Capital Markets Day later this year. A BMW spokesperson said it’s too early to comment on future measures, but capacity reduction plans are under study.

Unlike Volkswagen and Mercedes, which have already begun layoffs, BMW has yet to carry out mass layoffs, instead opting to improve plant efficiency, reduce investment spending, and promote the Neue Klasse new platform to improve profitability. However, as profit margin targets fall to just 1%-3%, the market has started to question whether these measures alone are enough for BMW to complete its transformation.

European Automakers Under Collective Pressure, Path of Transformation Still Unclear

BMW's predicament reflects broader structural challenges facing the European auto industry.

The classic model on which the German auto industry has long relied—core components developed and manufactured at home, then exported as high-value products to overseas markets—is facing fundamental shocks. Volkswagen CEO Oliver Blume has publicly acknowledged that the traditional export model, which has supported Germany’s auto industry for years, is no longer sustainable. Volkswagen is pushing for a major restructuring to embed itself deeper in the Chinese market.

In search of new growth points, some European automakers are turning their attention to the defense sector. Ineos Automotive and Daimler Truck announced plans to enter military vehicle production this week, joining the ranks of auto companies making this shift.

Citi analysts believe that "full-year profitability remains under downward pressure, structural negative industry trends persist, and EU regulation continues to weigh," so BMW's undervaluation may persist. Analysts generally judge that the significance of BMW’s latest profit warning goes beyond the company itself—it reveals a profound change underway for the entire European auto sector: as the era of electric vehicles reshapes the rules of competition, the business model that brought European automakers decades of success is now facing an unprecedented stress test.

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