BMW's July 17: A Recall, an Upgrade, and 7,500 Job Cuts in the Pipeline

BMW recalled 29,000 hybrids, received rare HSBC upgrade, and prepares to cut up to 7,500 jobs as it navigates falling margins and China weakness.

On a single day this month, BMW was hit by a vehicle recall, received a rare upgrade from a major bank, and moved closer to finalising a sweeping headcount reduction. The three developments may seem at odds, but together they capture the competing forces that are pulling the German automaker in opposite directions.

The recall, announced on 17 July, covers nearly 29,000 plug-in hybrid models in the United States — the 330e, 530e and 740Le from model years 2016 through 2020. Corrosion on the starter relay could, in extreme cases, cause a vehicle fire. While not the first technical callback for BMW in recent memory, the financial hit from this one is expected to be manageable.

That same day, HSBC upgraded BMW from ‘Hold’ to ‘Buy’. Analyst Mike Tyndall trimmed the price target to €71 from €79, but argued that the lowered annual guidance issued in June is now realistic and that further profit warnings are increasingly unlikely. China-related risks, he said, are already largely reflected in the current share price — a market that has been the single biggest drag on BMW’s performance.

The guidance cut Tyndall referred to was severe. BMW now expects an operating margin of just 1 to 3 percent, down from the previous range of 4 to 6 percent. To address that shortfall, the company is preparing a significant cost-cutting drive. Dorothea von Boxberg, currently CEO of Brussels Airlines, will take over the personnel board seat on 1 September, replacing Ilka Horstmeier. According to sources close to BMW, von Boxberg — who oversaw cost-reduction programmes at Lufthansa — is expected to lead the elimination of up to 7,500 jobs. A works meeting is scheduled in Munich for the end of July to brief employees on the plans.

The financial strain is visible in the first-half numbers. BMW delivered around 1.15 million vehicles worldwide, a decline of 4.2 percent versus the same period last year. Sales rose 5.4 percent in Europe and 3.9 percent in the United States, but steep losses in China dragged the global tally into negative territory. One bright spot: fully electric vehicle deliveries in Europe jumped 38 percent in the second quarter.

BMW is far from alone in this downturn. A study by the Center of Automotive Management found that 14 of 20 manufacturers recorded lower sales in the first half, with an average decline of 2.8 percent. Volkswagen dropped 6.5 percent, Toyota 3.1 percent and Hyundai 1.6 percent. BMW and Mercedes-Benz both fared better than the industry average. Still, competition is intensifying on multiple fronts. Mercedes-Benz is investing €1 billion to double capacity at its plant in Kecskemét, Hungary, while Chinese rival BYD — despite a 39 percent sales slump in China and a 15.7 percent global drop — has announced plans to take on BMW and Porsche directly with models such as the Denza Z9GT.

On the stock market, the pressure has been relentless. BMW shares closed on Friday at €58.40, down 0.75 percent on the day and 37.41 percent lower since the start of the year. That leaves the stock just 3 percent above the 52-week trough of €56.72, hit on 15 July. The relative strength index of 35.7 points to a potentially oversold condition — exactly the technical territory where HSBC’s call for a rebound begins.

Whether that bet pays off will depend largely on how quickly BMW can stabilise its Chinese business and deliver tangible results from the restructuring now being rolled out. The works meeting later this month will offer an early test of how deep the cuts will go and whether the revised margin targets can hold.