BMW targets margin recovery with cuts and local production

German luxury automaker BMW is set to release a plan for local production expansion as it aims to restore profitability after a series of profit warnings linked to weak performance in China, according to Bernstein analysts. The company is expected to unveil its strategy update at a capital markets day for investors on Wednesday, with Bernstein outlining key elements of the plan in a recent note.

BMW's reputation for resilience was tested in June when the company issued a surprise profit warning, its third in under three years due to China's market weakness. The setback highlighted the challenges European automakers face amid falling sales in China and US tariffs. In response, BMW announced a job reduction program affecting around 8,000 positions in Germany, joining Volkswagen and Mercedes-Benz in cost-cutting efforts.

Shares of BMW, which have fallen over 30% over the past year to their lowest level in six years, rose 1.4% as of 0744 GMT. The company intends to set a mid-term margin target of 3% to 5% for its automotive division by 2028, with an aim to reach 8% to 10% by the early 2030s, a significant improvement from its most recent margin of 2.3%.

Bernstein analyst Stephen Reitman emphasized that BMW's recovery plan involves growth through innovative products, with the electric iX3 SUV leading the Neue Klasse range. The company plans to launch a luxury SUV above the X7 and expand its M and Alpina lines from 2027 to strengthen its premium offering.

Additionally, BMW announced it would invest €2 billion ($2.3 billion) in German production of its next-generation 3 Series sports sedan. According to Bernstein, BMW's European and US plants are fully utilized, while China is the primary area requiring production adjustment and capacity flexibility.