Update 2 - BMW seeks to restore profit margins by cutting costs and localizing production

Revised publication date, added charts and key points list, updated all content regarding challenges, and supplemented information on German investments

Christina Amann/Rachel More

Reuters Munich, September 30 - Bernstein analysts said on Wednesday that German luxury carmaker BMW BMWG.DE will formulate more localized production plans in an effort to revive profit margins after issuing a series of profit warnings due to weakness in the China market.

BMW is scheduled to announce its strategic update later on Wednesday at its capital markets day for investors, but Bernstein outlined the key elements of the plan in a report after meeting with management.

In June this year, the company’s reputation for resilience took a heavy blow after issuing a shocking profit warning (link)—the third such warning in just over three years, due to sluggish performance in the China market. The setback underscores the challenge European carmakers face in dealing with falling sales in China and tariff issues in the United States.

The Munich-based automaker subsequently rolled out a redundancy plan expected to affect about 8,000 jobs in Germany (link), joining Volkswagen VOWG_p.DE and Mercedes-Benz MBGn.DE in cost-cutting measures.

BMW’s share price has fallen by more than a third over the last year, hitting its lowest level in more than six years. The company is unveiling its recovery plan at a two-day event in Munich and at the Gut Schwaerzenbach resort in Bavaria.

Bernstein said BMW will set a mid-term profit margin target of 3% to 5% for its automotive division by 2028.

By the early 2030s, BMW aims to restore profit margins to 8% to 10%, a significant improvement from its recent 2.3% margin.

At 07:44 GMT, the company’s share price rose by 1.4%.

“BMW understands that the solution is not merely about cost reductions. The company is also committed to growth through innovative products,” said Bernstein analyst Stephen Reitman, adding that the “Neue Klasse” line led by the electric SUV iX3 is at the core of the recovery plan.

Bernstein said BMW will confirm plans to launch a luxury SUV positioned above the X7 and will expand its M and Alpina product lines from 2027 to strengthen its high-end portfolio.

A BMW spokesperson said the detailed content of its strategy will be announced later on Wednesday.

Additionally, BMW said it will invest about 2 billion euros ($2.3 billion) to produce its next-generation 3 Series sports sedan in Germany.

According to Bernstein, BMW’s plant capacities in Europe and the United States are fully utilized, whereas China is the main region “where production needs adjustment and greater flexibility in capacity.”

(1 USD = 0.8811 euros)

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