BMW has delivered another unwelcome surprise. On November 3, the German automaker issued its second profit warning this year, saying that core profit margins in its automotive business are now expected to be between -0.5% and +0.5% by 2026, which means that the unit may experience operating losses.
That compares with the profit margin of 1% to 3% expected in June, itself a downward revision from expectations at the beginning of the year, according to Reuters.
The timing makes it sting even more. The warning came the night before BMW released its third-quarter report, which showed net profit fell about 15% to 1.44 billion euros and revenue fell nearly 6% to 30.45 billion euros. It’s a stark reversal for a brand built on premium pricing.
BMW restructuring costs rising
Layoffs are a big part of the problem. BMW said its job cuts are progressing faster than expected, meaning severance pay in the final quarter of this year will be higher than planned. Costs associated with increased production have added to the pressure.
The company is leaning toward that pace rather than slowing down. “The company intends to use the momentum generated by the workforce restructuring plan to scale up organizational and process adjustments more quickly,” BMW said, adding that “the reduction in management functions will be implemented sooner than announced.”
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Investors have already been punished once this year. According to Forbes, after BMW issued the warning in June, its stock price fell 13% in a few days. UBS estimated that the cuts would result in a profit loss of about 2 billion euros and warned that it was “too early” to buy on dips. Rivals Mercedes and Volkswagen also declined amid concerns about their exposure to China.
The warning follows one issued in June. At that time, BMW lowered its auto profit guidance from 4% to 6% to 1% to 3% and warned that group pre-tax profits would fall significantly. “We will adjust our current structures and processes to adapt to the sharp decline in market conditions,” Chairman Milan Nedelkovic said.
China continues to weigh on German automakers
China remains a sore spot. Although sales in Europe and the United States rose slightly, BMW’s third-quarter deliveries in China fell 24.8%, resulting in a 6.3% decline in global deliveries. According to the BMW Group, total deliveries fell by 4.9% in the first nine months of this year.
Local competitors inflicted great losses. Domestic brands such as BYD, Xiaomi and NIO are offering similar technology at lower prices, putting pressure on BMW in what was once its most profitable market. The China Passenger Car Association lowered its market forecast again in June.
BYD shows how quickly the landscape can change. The company is currently the world’s largest electric vehicle maker, selling 1 million vehicles outside China last year and aiming to sell 1.5 million vehicles by 2026. According to TheStreet, its European sales will surge by 270% in 2025.
For BMW, this model is very familiar. Chinese EV makers such as BYD, Nio, Xiaomi, Xpeng Motors and Geely’s Zeekr continue to make inroads into the luxury segment once occupied by German brands, squeezing profit margins across the market.
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Mercedes-Benz and other rivals are also cutting spending
BMW is not alone. Mercedes-Benz lowered its outlook for 2026 in late October, lowering its core auto margin guidance to 2% to 3% from 3% to 5%, after China deliveries fell another 29% in the first nine months of the year. The company now expects core profits to reach last year’s 5.8 billion euros, making it the third major German carmaker to cut its outlook for 2026.
Pressure has been building on Mercedes for months. Sales in China fell about 30% in the second quarter, hurt by local rivals such as BYD, as the real estate crisis sapped demand for luxury cars and reduced the spending power of wealthy buyers. Mercedes plans to launch “100% products suitable for China”, including more long-wheelbase versions.
Volkswagen goes further. Its supervisory board approved another 50,000 layoffs in September, raising the 2030 layoff target to about 100,000 people, accounting for about 15% of global employees. According to TheStreet, the reform, called the “2030 Future Plan,” also aims to reduce the model lineup by half by 2030 and achieve an operating profit margin of 9%.
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Investors see no quick fix. Mercedes CEO Ola Kaellenius has urged German workers to put in unpaid overtime as the company expands in Hungary, where he says costs have been reduced by about 70%. According to AFP, Ingo Speich of shareholder Deka Investment said: “Structural challenges show no signs of abating.” He warned that the industry as a whole needs more cost cutting and new products.
New class brings some hope
There is one bright spot. Strong demand for new models based on BMW’s Neue Klasse platform means the company will bear the cost of adding extra shifts, although deliveries of cars and motorcycles are now expected to fall sharply this year. BMW’s BMW, Mini and Rolls-Royce brands delivered 2.46 million vehicles last year.
Early signs are encouraging. The new iX3 received more than 100,000 orders in Europe in its first year on the market. In the third quarter, BMW’s global pure electric vehicle delivery volume increased by 7.2%. The Chinese version of iX3 will be launched in China in November.
The latest results show how much more work remains to be done. The sales margin of the automotive division fell to 3.4% from 5.2% in the same period last year. About 20% of the 551,000 vehicles delivered by BMW this quarter were pure electric vehicles. Whether new models can carry BMW through this reset is now a big question.
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