BMW doubles down on its newest cars

BMW will accelerate the rollout of new models, betting the move will help counter a slump in China after another profit warning.

The manufacturer has introduced more factory shifts to ramp up production of its Neue Klasse vehicles and phase out older models more quickly in a bid to shore up profitability in the coming years. 

The investments will weigh on the company’s performance in the near term, causing the German brand to reduce its expected carmaking returns for a second time in five months.

The new forecast range for the automotive segment’s profit margin is negative 0.5% to 0.5% this year, down from the prior range of 1% to 3%, according to a statement Wednesday.

BMW shares rose about 1.3% as of 11:00 a.m. in Frankfurt trading. The stock was down about 38% this year through Tuesday’s close, roughly in line with peers. 

BMW has been looking to stay competitive in an increasingly challenging sector by cutting costs, overhauling its management ranks and embracing the wider use of artificial intelligence both on factory floors and at its Munich headquarters.

Chief Executive Officer Milan Nedeljkovic is also banking on strong uptake from consumers for updated models from the Neue Klasse platform to compete with rivals ranging from Tesla to Chinese upstarts including Xiaomi.

The CEO, who took over in May, is pushing to shed about 8,000 jobs globally, about 5% of its workforce, along with about 100 high-level managers based predominantly in Munich.

He cited “strong interest” in the voluntary severance program from employees in Germany, enabling BMW to expedite its efforts with a goal of completing the reorganization by the middle of 2027.

Strong demand for new models including the iX3 sport utility vehicle boosted third-quarter automotive margins to 3.4%, the company said.

That’s well above the 2.6% average of analyst estimates compiled by Bloomberg. The expected margin excluding new structural and portfolio measures should exceed 2% this year, it added.

The company still expects its automotive segment to generate more than €2.5 billion ($2.8 billion) in free cash flow this year.  

BMW spent more than €10 billion in recent years to develop a new generation of electric vehicles with a high-tech software architecture for all of its products as part of the Neue Klasse line.

Beyond the iX3, it’s already revamped its popular 3-Series sedan with the new features, along with some other models. 

Production of the new vehicles is underway in Germany, South Carolina, China and Hungary. The company recently expanded operations at the Hungary factory to three shifts.

It plans to phase out older models sooner than previously planned, especially those based on outdated batteries, it said.  

BMW is “taking a deep dive look at the manufacturing footprint, technology stack and white collar workforce in order to accelerate as quickly as possible the competitiveness of its industrial footprint,” JPMorgan analysts led by Jose Asumendi said in a note. 

The company will probably record a non-cash charge of as much as €3 billion this quarter as it “clears the decks” for a return to its traditional profitability levels, Michael Dean and Giacomo Reghelin, analysts with Bloomberg Intelligence, said in a note. 

By the start of the next decade, BMW aims to return to its long-term auto-margin target of 8% to 10%. It’s targeting to improve to as much as 5% as soon as 2028.

After years of relying on China to fuel profits, BMW is dealing with collapsing demand in the country resulting from tough competition from local brands such as BYD, especially on electric vehicles. An ongoing property crisis in the country is also weighing on demand.

Deliveries within the region plunged 25% in the third quarter from a year ago, BMW said last month. The brand shipped more vehicles in the Americas during the quarter, with the US nearly eclipsing China as the biggest single market. 

BMW is preparing to launch a longer version of the iX3 in China this month, with other Neue Klasse vehicles to follow next year. 

The company now expects car deliveries to decrease moderately compared to last year, while the prior guidance called for just a slight decrease.