BMW's Profit Engine Shifts: Finance Arm Outearns Auto Division as China Sales Freefall

BMW's finance arm surpasses core auto profits for the first time amid a 35% net income drop, China sales collapse, and plans to cut 8,000 jobs by 2027.

BMW's second-quarter results have laid bare a stark transformation within the German automaker: its financial services division generated more operating profit than the core automotive business for the first time. The finance arm contributed €647 million in operating earnings, narrowly surpassing the €629 million from the car-making unit — a reversal that underscores the depth of the crisis gripping the company's traditional manufacturing operations.

Net income for the April-June period plunged 34.9 percent to €1.2 billion, while revenue fell 7.9 percent to €31.3 billion. The automotive division's operating margin cratered to 2.3 percent, dragged down by U.S. tariffs that alone shaved 1.25 percentage points off the figure. For the first half as a whole, group earnings before interest and taxes dropped 37 percent to €3.6 billion — the weakest six-month performance since the pandemic — with net profit sliding to €2.9 billion from €4.0 billion a year earlier, continuing a multi-year deterioration from €5.7 billion in 2024 and €6.6 billion in 2023.

China's Collapse Deepens as Europe and the U.S. Offer Partial Shelter

The primary culprit remains the Chinese market, where BMW deliveries cratered 20.4 percent in the first half and an even steeper 30.2 percent in the second quarter to just 117,815 vehicles. That hemorrhage was partially offset by stronger performances elsewhere: U.S. deliveries rose 11.9 percent in the second quarter, while European sales climbed 7.6 percent. Europe also proved a bright spot for battery-electric vehicles, with BEV deliveries surging roughly 38 percent in the second quarter, though the half-year total still fell 7.4 percent as government incentive programs expired.

CEO Milan Nedeljkovic, who took the helm amid the turmoil, described the challenges as accelerating at "breakneck speed" and pledged a rigorous cost-cutting campaign. CFO Walter Mertl signaled that efficiency measures would be intensified further.

8,000 Jobs to Go as Restructuring Takes Shape

After six weeks of negotiations with the works council, BMW finalized a restructuring plan that will eliminate approximately 8,000 positions from its global workforce of 154,000 — roughly 5 percent of staff. The cuts target indirect roles in administration, research and development, planning, and management, with around 40,000 employees in those areas receiving voluntary severance offers starting in October through the end of 2027. Production workers are exempt, and no compulsory redundancies are planned.

BMW has set aside a three-digit million-euro provision for 2026, with the program expected to generate annual savings of roughly €1 billion starting in 2028. The restructuring also claimed a board member: HR director Ilka Horstmeier is departing, with Dorothea Boxberg taking over on September 1 — one of several leadership changes that include the earlier appointment of Nedeljkovic and the conversion of all non-voting preference shares into common stock, effective June 30, following a May 13 shareholder vote.

Recall Clouds the Picture, New Battery Tech Offers Hope

Adding to operational pressures, Germany's Federal Motor Transport Authority ordered a recall of 744,234 vehicles across the 2 Series through 7 Series, X3 through X7, Z4, and i3 models from model years 2020 to 2026 due to a starter relay defect that could cause fires. On a more positive technological note, BMW began series production of sixth-generation high-voltage batteries at its Woodruff, South Carolina facility, destined for the upcoming iX5 built at the neighboring Spartanburg plant.

A Silver Lining in the Neue Klasse

The company's next-generation electric platform, dubbed the "Neue Klasse," is gaining traction. More than 50,000 units of the iX3 built on this architecture have already rolled off the line, with orders approaching the 100,000 mark — a rare bright spot in an otherwise bleak operational picture.

Stock Rebounds Despite Weak Fundamentals

Despite the grim financials, BMW shares have shown resilience. The stock traded at €61.20 on Thursday, gaining 1.66 percent on the day and 7.18 percent over the past week. The recovery comes even as the shares remain down 34.49 percent year-to-date and roughly 24 percent below their 200-day moving average of €79.71. Investors appear to be betting that the announced cost cuts and relative strength in Western markets can offset the China downturn.

Analyst sentiment is divided. HSBC upgraded the stock from "Hold" to "Buy" on July 22 with a €71 price target, arguing that China risks are now largely priced in following the year's steep decline. Deutsche Bank Research reaffirmed its "Buy" rating with a €90 target just ahead of the results, though it cautioned that pricing pressure in Asia would continue to squeeze margins. The company's margin guidance for the full year — slashed in June from 4-6 percent to just 1-3 percent for the automotive segment — remains intact, with the first-half result of 3.6 percent still above the upper end of that range but under pressure from the weak second quarter.

All eyes now turn to BMW's Capital Market Day on September 29, where management is expected to flesh out the Neue Klasse strategy and lay out a clearer path through the current storm. The company also continues its share buyback program, having repurchased 634,883 common shares between July 20 and 26.