BMW (XFRA-BMW) shares dropped sharply on Wednesday after the German luxury automaker revised its full year profit guidance downward, citing weaker than expected demand in China. The stock fell 7.4% in early European trading, dragging down other German carmakers including Mercedes-Benz, Volkswagen, and Porsche, which each declined more than 2%. BMW said late Tuesday that sales volumes in China have underperformed expectations throughout the year, prompting a downgrade in its fourth quarter outlook. The company also reported a decline in car financing and insurance activity, leading to a significant drop in commission income from Chinese banks.
As a result, BMW now anticipates a slight decline in group earnings before tax for 2025, compared to its previous forecast of flat performance. The automotive EBIT margin is expected to range between 5% and 6%, down from the earlier 5% to 7% guidance. BMW also lowered its free cash flow forecast for its automotive division, now targeting over €2.5 billion, down from more than €5 billion. The revision is largely due to a delay in expected tariff reimbursements, which are now projected to be received in 2026 instead of 2025.
These reimbursements relate to reduced U.S. import tariffs on EU made vehicles from 27.5% to 15% and anticipated reciprocal tariff cuts by the EU on U.S. cars and parts. BMW still expects to recover a high three digit million euro amount. Narayan added that the cash flow impact is less concerning given the timing shift in tariff refunds, rather than a fundamental deterioration in business performance.