BMW's Margin Collapse Triggers Restructuring as China Sales Plunge
Published on 07/31/2026 at 03:01 | Redaktion boerse-global.de
MUNICH — BMW's second-quarter earnings laid bare the depth of the automaker's China crisis, with operating profit in its core automotive division slumping to levels not seen in years. The EBIT margin in the car business tumbled to 2.3 percent from 5.4 percent a year earlier, as a near-one-third drop in Chinese deliveries and ferocious price competition crushed profitability.
The broader group figures were equally stark. Net profit fell 35 percent to €1.2 billion for the three months through June, while revenue declined 7.9 percent to €31.26 billion. Operating profit at the group level dropped 39 percent to €1.63 billion, underscoring the severity of the headwinds facing new CEO Milan Nedeljkovic, who took the helm in mid-May.
Cost-Cutting Accelerates
Even before the earnings release, BMW had unveiled a sweeping restructuring plan. The company aims to cut approximately 8,000 jobs globally by the end of 2027, with the reductions in Germany expected to be achieved through severance packages and natural attrition rather than compulsory layoffs. The move reflects management's recognition that the weaker China market is not a temporary blip but a structural shift requiring permanent cost adjustments.
The restructuring comes alongside a technological pivot. BMW has selected Qualcomm as its strategic chip supplier for future vehicle generations, while its new Woodruff plant in the United States is scheduled to begin series production of high-voltage batteries for the iX5 model in December 2026 — a key milestone for the company's North American electrification push.
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Recall Waves and a Legal Settlement
Operational challenges have compounded the financial pressure. BMW issued a global recall of 744,234 vehicles after Germany's KBA and the U.S. National Highway Traffic Safety Administration identified a faulty starter relay that could cause fires. In the U.S. alone, 318,495 vehicles spanning the 2 Series through 5 Series, along with X3, X4 and Z4 models, are affected — including Toyota Supra units manufactured by BMW. A separate recall of 29,119 plug-in hybrids had been announced days earlier for a related defect.
A rare bright spot came from an unexpected source. BMW reached a €350 million settlement with supplier Aumovio to resolve a long-running legal dispute over brake systems. The payment, to be made in two installments during the second half of 2026, will provide some balance-sheet relief against the quarter's operational weakness.
Analyst Views Diverge
The investment community remains split on BMW's prospects. Bernstein Research maintained its "Outperform" rating with an €85 price target, arguing that the results contained no fresh negative surprises after the company's June profit warning. Jefferies analyst Philippe Houchois kept a "Hold" rating and €70 target, though he highlighted the better-than-expected free cash flow in the automotive division as a positive. HSBC upgraded the stock, believing China risks and margin weakness are now priced in following the year-to-date share price decline, while Deutsche Bank reaffirmed its buy recommendation with a €90 target while cautioning about persistently weak sales volumes.
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Market Reaction and Outlook
Despite the grim numbers, BMW shares showed resilience. The stock closed Thursday at €60.68, up 0.43 percent, and has now recovered 7.6 percent from its 52-week low of €56.40 touched on July 24. The muted reaction suggests much of the bad news had already been discounted — though the shares remain 38 percent below their December peak of €97.90 and have lost more than a third of their value since the start of the year.
Investors will now look to September 29-30, when BMW hosts a capital markets day expected to provide details on its long-term strategy and the "Neue Klasse" platform. With the conversion of all preference shares into ordinary shares completed in late June, the shareholder base is now unified under a single class — setting the stage for what could be a pivotal moment in determining whether the cost-cutting drive and product pipeline can reverse the automaker's fortunes.
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