European auto shares fell broadly Wednesday after BMW slashed its profit guidance late Tuesday, citing a sharp deterioration in China and the Middle East conflict’s impact on its operations. BMW’s stock slid 11%, the worst performer among the group. Mercedes-Benz Group dropped 4.9%, while Volkswagen, Stellantis and Volvo Car each lost about 3%.
BMW said in a statement after the close Tuesday that the Chinese car market worsened in the second quarter, driving intensified competition that spilled over into the broader Asia-Pacific region. Lower sales in the region offset higher volumes in Europe and the U.S., the company said. At the same time, the Middle East conflict has hit BMW’s operations harder than expected. Energy prices remain elevated, increasing costs, while geopolitical and macroeconomic instability is weighing on consumer sentiment across global markets.
As a result, BMW cut its full-year guidance across a range of key financial metrics. It lowered its automotive earnings before interest and tax margin forecast to a range of 1% to 3%, down from 4% to 6%. The return on capital employed in the automotive unit was cut to 1% to 5% from 6% to 10%. Group profit before tax is now expected to see a significant decline, compared with a prior expectation of a moderate decrease.
Analysts at Bernstein said the move was out of character for the company. “This is a rare misstep for BMW,” they wrote in a note to clients. “The company had reiterated its 4%-6% automotive margin corridor expectation for 2026 at its 1Q26 results on 6 May where it had also printed a 5% auto margin that was ahead of the 4.7% consensus.”
BMW said it would intensify and accelerate its cost-cutting plans, which the company said would become visible in the coming years, though it cautioned the measures would come with a one-off impact on earnings in the second half.
New BMW Chief Executive Milan Nedeljkovic, who took the helm last month, said the company would adapt its current structures and processes to the drastic downturn in market conditions, moving quickly to become more efficient.
RBC Capital Markets analyst Tom Narayan said the China and Asia-Pacific struggles are largely macro-driven, indicating a negative read-across for European auto manufacturers such as Mercedes-Benz and Volkswagen. He said they could issue similar profit warnings before their second-quarter earnings reports.
Importantly, Narayan said the bulk of BMW’s restructuring actions are for its European operations, which could include factory closures and headcount reductions, but those measures do not address the company’s situation in China. He added that on the positive side, with the announcement of a preliminary framework to end the conflict between the U.S. and Iran, the energy cost inflation that BMW cited could decline in the second half, leaving potential upside to the revised guidance.