Zipse submits his answer sheet; the era of betting on a single path is over.
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Author | Zhou Zhiyu
BMW Group Chairman Oliver Zipse toured this year's Beijing Auto Show. His impression of the event: electric, large SUVs, autonomous driving, and most booths showcasing the same things. "Almost all the same."
In a call on May 6, Zipse admitted that the global market is highly fragmented in terms of powertrains, vehicle size, and price range, but the whole industry acts as if the market is unified. "Worrying is, the whole industry thinks they just need to bet on a single segment."
The quarterly report BMW released that day for Q1 2026 shows a split sense in the global auto market, with different situations in different markets.
This was Zipse’s last quarterly call as BMW’s CEO after seven years at the helm. The outgoing European auto executive expressed his concerns about the current market.
BMW's quarterly report itself is a mirror. Over the past seven years, BMW has focused on "technology openness" rather than "full electrification," which gave BMW resilience in this split market. The downside is that the financials have not told an exciting story.
Zipse used this last quarterly report to prove the direction is correct. But there’s still some way between the right direction and profit realization.
Split Market
The fragmentation of the global auto market in Q1 was the most extreme in the past five years.
According to industry data, Q1 2026 saw the EU 27 countries up 3.8%, the US down 6.6%, and China down 17.5%. Not only are the trends different among the three markets, but the drivers are entirely different: Europe benefits from mild economic recovery; the US suffers from the BEV subsidy removal; China faces a double contraction from subsidy withdrawal plus weak consumption.
Zipse pointed out a structural fact often overlooked: only about 30% of the Chinese market is pure electric, the rest are plug-in hybrids, range extenders, and fuel vehicles. In Q1, China’s BEV sales dropped sharply, but demand for fuel and plug-in vehicles went up. This structure is the opposite of Europe, where pure electric orders surged by over 60% in Q1.
If a carmaker only bets on BEVs, it's facing headwinds in China and the US. If only betting on ICE, it misses Europe. BMW is among the few to have prepared for both scenarios.
Europe’s growth comes from the Neue Klasse. Since the iX3 debuted last September, it has received over 50,000 orders, deliveries began in March. Currently, over half of X3 orders in Europe are for pure electric. Zipse said one in three new BMW pure electric orders in Europe is for iX3, and these are genuine orders with deposits, not just intent registrations.
US growth comes from fuel vehicles. After the BEV subsidy ended, BEV sales dropped, and the Spartanburg factory ramped up production for the X5 fuel version by nearly 10,000 units, almost entirely making up the BEV gap. Zipse said: "We don't need to build new things from scratch, we can switch instantly."
The story in China isn’t about volume, but about quality. BMW deliveries in China fell 10% in Q1, but the overall market dropped 17.5%. BMW outperformed the market.
BMW CFO Mertl revealed that Q1 sales of X5 in China exceeded last year’s same period, and transaction prices were higher. BMW has adjusted dealer networks and lowered official prices over the past year and a half. The result: the official price went down, but transaction prices edged up.
These three markets’ strategies are entirely different, but they share one premise: BMW has a full lineup of BEV, PHEV, and ICE in every market, and production lines can switch fast. This is the operational meaning of Zipse’s “technology openness”—not just a slogan, but a real ability to hedge across multiple global markets.
Globally, BMW’s BEV deliveries dropped 20.1% year-on-year in Q1 2026, with the share falling from 18.7% in Q1 2025 to 15.5% in Q1 2026. But the BEV drop was offset by ICE and PHEV, so BMW’s global deliveries only fell 3.5% in Q1 2026, better than the market average.
Zipse summed up that surviving companies need three things: system integration capability to combine all technologies into one car; long-term quality so cars stay together after a year or two; judgment to distinguish between singular hotspots and overall business models. "Frankly, there are too many gambles in the industry now."
He’s not saying BMW is the best. He’s saying the risk of betting on a single path is greater than most realize.
The Profit Battle
The strategy worked, but the profits haven’t caught up. Automotive segment EBIT margin was 5.0%, not a comfortable figure for a luxury brand like BMW.
But the 5% is worth unpacking.
Tariffs ate about 1.25 percentage points of EBIT margin in Q1 2026. Last year only the EU’s anti-subsidy tariff on Chinese EVs; this year, the US added tariffs, increasing the burden. The purchase price allocation (PPA) amortization from consolidating Brilliance BMW continues to eat about 1.2 percentage points.
Together that’s nearly 2.5 points. Adjusting for these non-operational burdens, the automotive segment operating margin is about 7.4%.
This is not to defend the 5%. Tariffs are a long-term game; PPA amortization will last until mid-2028. But it shows BMW’s margin pressure mainly comes from external burdens, not poor sales or runaway costs.
There’s another piece on the profit table. Group EBIT margin is 7.6%, roughly flat versus 2025. But finance income flipped from minus €29 million last year to plus €344 million, as Middle East tensions pushed up long-term rates, and rate hedging derivatives generated mark-to-market gains—that is not sustainable.
Mertl has not loosened the 8-10% long-term margin target. Is it still realistic? He cited three supports: single-car profits from Neue Klasse are well above current models; costs are being compressed across material, manufacturing, and warranty; fixed costs will gradually fall from 2026 to 2028.
And a hard node: PPA amortization ends in mid-2028, releasing the 1.1-1.2 points per quarter it now eats. That alone could improve 2029 margin by over 1 point.
Before that, BMW is navigating an amortization peak. R&D spend is being cut, capex is cut, but R&D expenses including amortization are rising, as previously capitalized development costs for Neue Klasse are now being expensed. This is a classic shift from “peak investment” to “peak amortization,” likely lasting through 2026-2027.
There's another underestimated upside on tariffs. Asked whether export hedging is included in tariff assumptions, Mertl replied clearly: “Export hedging isn’t in the 1.25 points, not at all.” If this mechanism is implemented, actual tariff drag would be less than guidance.
The second half of China’s market is a key test for whether Neue Klasse can drive profit improvement. Asked about pricing of the new generation in China, Mertl said it will be determined before sales launch. “But trust me, we are very clear about what we want to do.” The new X5 enters China in 2027 with Neue Klasse tech. Mertl said dealers report that Neue Klasse’s tech stands on the same level as China’s domestic brands.
BWM’s profit recovery rhythm is clear: FX and raw material headwinds concentrate in H1, weaken in H2. Neue Klasse ramps up after midyear, iX3 European orders convert to deliveries, Munich plant starts i3 production in August.
Sources close to BMW told Wall Street Journal that Q1 is expected to be the year's trough, with gradual recovery afterward.
On May 30, Zipse will attend BMW’s shareholder AGM for the last time, then formally hand over to Nedkovic. The situation he leaves is not complicated: strategy verified by Q1, the roadmap for margin recovery drawn, Neue Klasse improves single-car profit, cost keeps falling.
But roadmap is roadmap, the profit sheet is the profit sheet. From 5% to 8%, the gap includes Neue Klasse pricing in China, production ramping rhythm, and an unpredictable tariff environment.
In his last call, Zipse quoted Karl Popper: "Optimism is the duty of entrepreneurs."
He fulfilled this duty. Now it's up to his successor to prove that optimism is not just a duty, but also correct.
Risk Warning and DisclaimerThe market poses risks. Investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any views, opinions, or conclusions in this article suit their own circumstances. Invest accordingly, at your own risk. ```