BMW's New Chief Faces an Early Test as China Slump Wipes Out Auto Margins

BMW's Q2 net profit fell 35% to €1.2B amid a 33% China sales drop, triggering 8,000 job cuts and a strategic overhaul under new CEO.

The numbers landing on BMW's investor desks this week tell a sobering story. Net profit at the Munich-based automaker slid 35 percent in the second quarter to €1.2 billion, while revenue contracted 9 percent to €31 billion. But the most alarming figure sits deeper in the accounts: operating profit in the core automotive division tumbled 60 percent to just €629 million, dragging the segment's EBIT margin down to a wafer-thin 2.3 percent.

The culprit is unmistakable. Sales in China, long BMW's most important growth market, collapsed by roughly a third during the quarter. The deterioration there has been building for months — management had already flagged a 4.9 percent drop in global deliveries during a pre-close conference call on July 10 — but the scale of the second-quarter damage caught the market off guard.

A Structural Problem, Not Just a Cyclical Dip

The China weakness runs deeper than a temporary demand pause. German business weekly WirtschaftsWoche framed the slump as a symptom of a strategic blind spot: BMW, Volkswagen, and Mercedes all misread the pace of transformation in the Chinese market, prioritizing short-term profits over necessary strategic pivots. The pain is spreading unevenly across the supplier chain — BMW's decline was sharp, while parts maker Forvia posted a smaller-than-expected revenue drop.

Macro data from Beijing offers little comfort. The official manufacturing purchasing managers' index slipped to 49.2 in July from 50.3 in June, falling below the 50-point growth threshold for the first time in five months. China's GDP expanded just 4.3 percent in the second quarter, down from 5.0 percent in the first. The Politburo has pledged support measures but has yet to deliver specifics.

8,000 Jobs on the Line

BMW's response is a global restructuring that will eliminate roughly 8,000 positions, more than half of them in Germany. The cuts, slated to begin in October, will target production-adjacent and administrative areas. The plan has drawn criticism from the left-leaning taz newspaper, which called it an assault on co-determination rights, noting that some employees could be shifted to smaller firms without works councils.

The job cuts mark an early test for Milan Nedeljkovi?, who took over as CEO from Oliver Zipse in May. He is betting on the "Neue Klasse" platform to reverse the company's fortunes, but the immediate challenge is stabilizing profitability in the company's most important market.

BMW is hardly alone in its misery. Volkswagen has announced plans to cut 50,000 jobs by 2030 and has floated the possibility of plant closures in Germany. The entire industry is wrestling with elevated energy costs, US tariffs, and intensifying competitive pressure from Chinese EV makers. Germany's economy minister, Katherina Reiche, has urged the European Commission to show more technology openness on CO2 fleet limits and to waive penalty payments that would drain automakers' transformation budgets.

Analyst Sentiment Sours

The DZ Bank moved on Friday to downgrade BMW shares from "Buy" to "Hold," trimming its fair value target from €75 to €65. Analyst Michael Punzet cited the likelihood that China's weakness will persist through the Capital Market Day scheduled for late September. The revised target still sits above the current trading level, but the message is clear: no near-term catalyst is visible from the region that matters most.

The stock has been drifting lower, trading at €59.40 on Friday, down 2.11 percent on the day. That puts the shares roughly 6.2 percent below their 50-day moving average — a technical signal that the short-term downtrend remains intact. The paper sits just 5.89 percent above its 52-week low of €56.40, which was marked on July 24.

A Silver Lining in Electrification

Not everything is bleak. Battery-electric vehicles accounted for 19.8 percent of BMW's deliveries in the quarter, a record share that shows the company's EV push is gaining traction. But the electrification momentum is not yet enough to offset the China shortfall, and the margin math remains unforgiving.

The company has also moved to simplify its capital structure, converting all preferred shares into common stock as of June 30, with trading in the preference shares now discontinued. The dividend policy remains intact for now — shareholders approved a payout of €4.40 per common share for fiscal 2025 at the annual meeting on May 13.

What to Watch Next

Investors now have two dates circled on the calendar. The Capital Market Day on September 29-30 should offer a fuller picture of BMW's strategic direction under its new leadership, followed by the next quarterly report on November 4. Between now and then, the China question will dominate the conversation. For a company that once counted on the country as its engine of growth, the road back is looking longer — and steeper — than anyone anticipated just a year ago.