BMW's stock dropped sharply on Wednesday after the company revised down key profitability and delivery expectations for 2026, attributing the deterioration to an intensifying sales slump in China and broader market effects tied to the Middle East conflict.
On an investor call held after an ad hoc company statement, Chief Financial Officer Walter Mertl said BMW narrowed its full-year automotive EBIT margin corridor to 1-3%, down from the prior range of 4-6%. The company also now expects group profit before tax to decline significantly, a step down from a previous forecast of a moderate decline. Automotive return on capital employed was cut to a 1-5% corridor from an earlier 6-10%.
Mertl described a rapid deterioration in the China market, citing a series of downward revisions from the China Passenger Car Association. According to Mertl, the association pared its full-year market forecast from a flat market in December 2025 to a 7.6% decline in early May, an 11.2% drop in the third week of May and a 14.3% contraction in its most recent forecast published on Monday. BMW's year-to-date sales through May were already down 19.4%, he added.
The firm reduced its automotive delivery guidance to call for a slight decrease year-on-year, reversing an earlier expectation of deliveries matching the prior year. Despite the weaker sales outlook, BMW reiterated an expectation for automotive free cash flow above 2.5 billion for the year.
Mertl provided additional regional detail, saying BMW's sales in China declined 10% year-on-year in the first quarter and fell 17.6% over the first five months of the year. He noted that the company had earlier sustained a fairly steady sales run rate of about 50,000 vehicles a month through 2025 and into 2026 before demand softened.
"We cannot operate in isolation of this market development," Mertl said, pointing to intensified competition in the region. He added that the Asia Pacific region overall experienced double-digit sales declines in April and May.
While Mertl flagged positive sales trends in the United States and Europe, and highlighted specific positives such as sales of the iX3 model and lower costs for Gen6 battery packs, he said these factors would not be sufficient to offset the volume decline across China and Asia Pacific. He also said the Middle East conflict had pushed up energy prices and weighed on consumer sentiment worldwide, producing effects "beyond our original assumptions."
In response to the earnings outlook deterioration, BMW said it will intensify previously announced structural and efficiency measures. The group cut costs by roughly 2.5 billion in 2025 and signaled that additional actions will be taken. These extra measures are expected to create a one-time negative impact in the second half of 2026, with benefits visible in later years.
BMW also confirmed it will keep its dividend payout ratio in the 30-40% range and proceed with its third share buyback program. Chairman Milan Nedeljkovi7 said further specifics on the planned measures will be released at a Capital Markets Day scheduled for the last week of September.
Market analysts reacted to the margin downgrade. Jefferies reduced its price target on BMW to 70 from 92 while maintaining a "hold" rating. The firm said the depth of the margin cut implies BMW may be reconsidering a global assembly model that is still heavily reliant on exporting internal-combustion engine powertrains from Germany. Jefferies trimmed its 2026 automotive EBIT margin estimate to 2% from 5.2% and lowered its 2026 revenue forecast by 3% to 128.70 billion.
Context and takeaways
The company has moved from expecting stable deliveries to forecasting a slight decline and has materially reduced profitability corridors. Management emphasizes that regional market deterioration - particularly in China and Asia Pacific - combined with macro effects tied to the Middle East conflict, are the proximate drivers of the revised outlook. Actions announced are intended to restore cost competitiveness but will impose a near-term financial impact in the second half of 2026, with the company aiming for results to improve in subsequent years.