Iceberg ahead

“Roughly one-third of BMW’s volumes end up here, which remains concerning, but also to others with similar exposures to this part of the world. Expect this to be the iceberg warning and BMW steering away.”

“Others who take longer to adjust their strategies could strike it head-on, with VW Group remaining a concern, given the apparent addiction to the buzz of Beijing and the sizzle of Shanghai, despite weaker financial returns, and are unprepared to make a real effort to de-risk,” Schmidt said.

BMW Chairman Nicolas Peter intervened to tell reporters the company is on the right track, according to Automotive News Europe, not least because of orders for the company’s Neue Klasse vehicles.

Neue Klasse is a multi-billion-euro technological overhaul designed to reshape BMW’s entire vehicle portfolio. Focused on electrification and digitalization, the program underpins over 40 upcoming models, starting with the electric iX3 SUV and i3 sedan.

Europe a pillar of BMW’s export business

“Europe remains a pillar of our global export business,” he said to journalists in Paris, ANE said. Peter also warned that EU regulations risked bogging down the industry. He reiterated BMW’s opposition to the European Union’s proposed ban on the sale of new ICE vehicles from 2035. These rules have already been subject to watering down proposals.

Investment researcher Jefferies said earlier these developments threatened to undermine BMW’s business model and by implication, all of the German auto industry.

“Many investors seemed to expect a warning due to sustained China market weakness impacting absolute EBIT (earnings before interest and tax) but not a margin reset of such magnitude. It seems to us that BMW could be rethinking a global business model still largely based on exporting ICE powertrain from Germany,” Jefferies said.

This news came at a bad time for the European industry as it faces weak demand, U.S. tariffs, and the costly transition to electric and software-defined vehicles.

Moody’s Ratings said Friday it cut its outlook for BMW to “negative” from “stable”.

Unspecified charge coming up

BMW announced June 16 that it now expects profits for 2026 of between 1% and 3% after a previous forecast of between 4% and 6%. According to investment bank UBS, this cut €2 billion ($2.3 billion) from BMW’s 2026 profits. BMW said it will expand its cost-cutting program, which will lead to an unspecified charge in the 2^nd half of 2026.

Moody’s said it expected profit pressure for BMW to continue.

“The outlook change reflects BMW's currently weak profitability and depressed FCF (free cash flow) generation, together with uncertainty over the scale and timing of a margin recovery to levels we view as commensurate with the rating. An operating performance during 2026 at the lower end of the revised guidance combined with a delayed performance recovery expectation could result in additional negative rating pressure over the next quarters,” Moody’s said in a statement.

“The revision reflects an accelerating decline in the Chinese passenger car market, with spillover effects into the broader Asia-Pacific region, as well as the continued impact of the Middle East conflict on energy costs and consumer sentiment affecting demand for BMW's products globally. Against this backdrop, the company has announced plans to intensify its structural and efficiency measures, which will result in a P&L charge during the second half of the year,” Moody’s said.

The FT’s Lex said the pressure from China in Europe will accelerate.

Lots of spare China capacity bound for Europe

“Worse, the Chinese market is itself now shrinking, as the economy splutters and subsidies are phased out. With electric vehicles continuing to gain share, that further squeezes European carmakers. It also leaves their Chinese rivals with lots of spare capacity to export their cheap EVs abroad,” Lex said.

“That’s where things go from extremely uncomfortable to actually threatening for the likes of Stellantis, Renault, VW and BMW,” Lex said.

Chinese automakers have increased their market share in Europe from close to zero in 2021 to about 10% now.

As European automakers lose out on sales, so their unused capacity is being taken up by Chinese manufacturers. BYD and SAIC are setting up transplant factories.

Stellantis has a deal to make Leapmotor EVs at its underused plants and is said to be talking with luxury brand Hongqi for production in Spain. Chery is building vehicles at Nissan’s former Barcelona site and seeking a similar deal at Nissan’s plant in England. Geely has acquired a stake in Ford’s Valencia plant to produce SUVs. Volkswagen, with surplus annual capacity of 800,000, is reportedly considering sharing assembly lines with SAIC and Xpeng. BYD is building a 300,000 annual capacity factory in Hungary. SAIC/MG is building a factory in Galicia, Spain, targeting 120,000 vehicles by 2028.

BMW shares steadied Friday, rising almost 1% to close at €60.26 after falling 13% since the profit warning.