BMW slashes 2026 profit forecast as China slump and Iran war costs bite, shares drop 7%

The profit warning

BMW issued an ad-hoc profit warning on Tuesday evening, slashing its 2026 forecast for the first time under new CEO Milan Nedeljković, who took office just four weeks ago. The group now expects a "significant" decline in pre-tax profit, defined internally as a drop of more than 15 percent, after previously guiding for only a "moderate" fall. The operating margin in the core automotive segment is now seen at 1 to 3 percent, down from the 4 to 6 percent range set by predecessor Oliver Zipse. The free cash flow forecast in the auto division was also cut to more than €2.5 billion, from over €4.5 billion previously.

“It's about speed and efficiency.”

China and the Iran conflict

BMW pointed to two main drivers. In China, the decline accelerated in the second quarter, particularly for combustion-engine vehicles. The industry association CPCA had lowered its market forecast again as recently as Monday. A stronger sales performance in Europe and the US could not offset the Chinese slump, the company said. In May alone, the Chinese auto market contracted by more than a fifth. The second factor is the Iran war, which is pushing up energy prices and weighing on consumer sentiment across multiple markets. BMW had previously expected the conflict's effects to fade faster; it now assumes the headwinds will persist longer.

“That such a sharp profit warning comes so soon after the handover is surprising and shows that a lot was missed beforehand.”

Cost-cutting and potential job losses

The company said it would "intensify and accelerate" ongoing cost reductions through additional structural and efficiency measures. These will generate one-off charges in the second half of 2026, with savings materialising in subsequent years. Participants in a capital-market call on Tuesday indicated the one-off burden could reach roughly one billion euros, though it is unclear how much of that relates to headcount reduction. BMW's workforce already shrank by around 3,000 in 2025, mainly in Germany and China. The current wording in the annual report, "slight decline", implies a reduction of 1 to 5 percent, which at nearly 155,000 employees could mean several thousand jobs.

Market reaction

BMW shares fell nearly 7 percent in Frankfurt trading on Wednesday, dragging rivals Mercedes-Benz and Volkswagen down by 3.5 and 2.5 percent respectively. Analysts at Deutsche Bank Research, DZ Bank, Jefferies and Barclays cut their price targets to a range of €70 to €90, with ratings spanning from Buy to Underweight. The stock, which closed at €62.82, sits well below its 200-day moving average of €83.69 and has lost 14 percent over the past 12 months while the DAX gained 5 percent. The annualised volatility of 29 percent and a maximum drawdown of over 35 percent in 128 days underscore the stock's elevated risk profile.

“A wake-up call for the auto industry.”

Sector-wide implications

RBC warned that the weakness in China is primarily market-driven and could serve as a negative signal for other European automakers, which may also be forced to issue profit warnings. JPMorgan's Asumendi said BMW must completely rethink its strategy in the compact segment in China, where European premium brands are no longer price-competitive. The broader concern is whether the current developments signal a fundamental review of the business model, potentially involving greater localisation of production and procurement in North America and China.

Auto EBIT margin (old)5

Auto EBIT margin (new)2

RoCE (old)8

RoCE (new)3

Free cash flow auto (old, €bn)4.5

Free cash flow auto (new, €bn)2.5

Auto EBIT margin (old)

5 percent

Auto EBIT margin (new)

2 percent

RoCE (old)

8 percent

RoCE (new)

3 percent

Free cash flow auto (old, €bn)

4.5 percent

Free cash flow auto (new, €bn)

2.5 percent

Data from the article text