Munich-based BMW AG has issued a stark profit warning, forecasting a “significant” drop in pre-tax profit for 2026. The luxury carmaker, which owns the BMW, MINI, Rolls-Royce, and BMW Motorrad brands, cited deteriorating market conditions in China and the ongoing conflict in the Middle East as the primary drivers behind the revised outlook.
Shares in BMW fell more than 7% in European trading on Wednesday morning following the announcement. The company now expects vehicle deliveries to decline slightly year-on-year, reversing its earlier forecast of stable volumes.
China Slowdown and Middle East Fallout
BMW pointed to a further weakening of demand in China, its largest single market, which has intensified competition across the region. The carmaker also noted that the war involving Iran has had a greater-than-anticipated effect, keeping energy prices elevated and weighing on consumer sentiment. While sales in Europe and the United States have improved, they have not been enough to offset the downturn in China.
“The Iran war has had a negative impact on consumer sentiment, and that's dampened demand for its vehicles,” said Russ Mould, investment director at AJ Bell.
As a result, BMW now expects a significant decline in profit before tax from last year's €10.2 billion. Previously, the company had guided for only a moderate decrease in 2026. The carmaker has also slashed its profitability targets: it now forecasts an automotive EBIT margin of 1%–3%, down from 4%–6%, and a return on capital employed (ROCE) of 1%–5%, compared with the earlier range of 6%–10%.
Cost-Cutting Accelerated
In response to the worsening environment, BMW plans to intensify and accelerate its ongoing cost-cutting efforts through additional structural and efficiency measures. These initiatives are expected to have a one-off negative impact on earnings in the second half of 2026.
Milan Nedeljković, chairman of the Board of Management of BMW AG, said: “We will adapt our current structures and processes to the drastic downturn in market conditions. It is our entrepreneurial responsibility, therefore, to significantly intensify and accelerate our ongoing measures. It's all about speed and efficiency.”
The warning underscores broader pressures facing Europe's automotive sector. Mould added: “The natural response is to look for ways to cut costs in the business, but messaging from the broader automotive sector would suggest BMW simply joins a growing line of car makers stuck in the slow lane for the foreseeable future.”
The challenges come as Berlin blocks UniCredit's hostile Commerzbank bid, highlighting the delicate balance between protecting national champions and fostering competition in Germany's financial and industrial landscape.
Despite the profit warning, BMW continues to expect automotive free cash flow of more than €2.5 billion. Its dividend payout ratio of 30%–40% of net income attributable to BMW AG shareholders, as well as its ongoing share buyback programme, remain unchanged for now.
The announcement adds to a growing list of headwinds for German industry, which is also grappling with security concerns over drone threats to the Bundestag and the broader implications of geopolitical instability on supply chains and energy costs.
