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(Sharecast News) - Shares in BMW fell sharply on Wednesday, after the German car giant warned that ongoing weakness in China had put the brakes on profits.
In a brief update published late on Tuesday, the Munich-based manufacturer said the "negative development" in the Chinese car market had accelerated in the second quarter, leading to stiffer competition in both China and other countries in the Asia Pacific region.
"BMW cannot operating in isolation in the situation," it continued. "Positive volume developments in Europe and the USA cannot compensate for the sales decline in China and Asia Pacific."
BMW also warned that the war in Middle East was having a larger-than-expected impact. "On one hand, energy prices remain elevated and weigh on the cost structures in our company. On the other, the lack of stability due to conflict is negatively impacting consumer sentiment across markets around the world.
"The effects outlined above contributed to a significant decline in profit and free cashflow in the second quarter."
As a result, 2026 deliveries are now expected to be down on the previous year, compared to an earlier forecast for deliveries to be largely unchanged.
The earnings margin was predicted to come in between 1% and 3%, sharply below previous guidance for between 4% and 6%, while pre-tax profits - initially expected to be down moderately on 2025 - are now on track to decrease significantly.
As at 1000 BST, the Frankfurt-listed stock had tumbled 7%.
BMW is set to publish interim numbers on 30 July.
Jefferies, which has a 'hold' rating on the stock, said: "Many investors seemed to expect a warning due to sustained China market weakness impacting absolute EBIT, but not a margin reset of such magnitude. It seems to us that BMW could be rethinking a global assembly business model still largely based on exporting ICE powertrain from Germany. We cut auto margin to 2% and price target to 70 on lower cumulative free cashflow."
Russ Mould, investment director at AJ Bell, said: "The natural response is to look for ways to cut costs in the business, but messaging from the broader automotive sector would suggest BMW is simply joining a growing line of car makers stuck in the slow lane for the foreseeable future."