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(Bloomberg) — BMW AG slashed its profitability forecast for the year and ramped up its cost-cutting program as the German automaker warned of worsening demand in China.
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The manufacturer now expects carmaking returns of 1% to 3%, from as high as 6% previously, it said late Tuesday. BMW cited a deepening slump in China and negative sentiment from the war in the Middle East.
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The company will expand its 2026 cost-cutting program, leading to a one-time negative impact in the second half of this year, it said. The company did not specify whether the plans include job cuts.
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The lower forecast comes just one month into the tenure of Chief Executive Officer Milan Nedeljkovic, who took over in May from Oliver Zipse. The former head of production is tasked with overseeing the buildout of BMW’s updated electric lineup, dubbed Neue Klasse, that cost billions of euros to develop. The payoff for that could be complicated by weakening demand in China, its biggest market.
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BMW had already cut spending earlier this year in areas ranging from research and development to investments. The newer measures are designed to adapt to a “drastic downturn in market conditions,” Nedeljkovic said.
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The Chinese car market has further deteriorated in the second quarter, causing competition to become more intense throughout the Asia Pacific region, the company said. That’s overshadowing growth in Europe and the US, it added.
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The impact of the Middle East conflict is proving more damaging than BMW previously expected, both from higher energy prices and the deterioration in consumer sentiment around the world, it said. BMW now sees a significant decline in profit and free cashflow in the second quarter.
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The automaker now expects deliveries to drop slightly this year, having previously anticipated flat sales. The dividend payout ratio and share buyback program will continue as planned.
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The company plans to publish its quarterly results on July 30.
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(Updates with additional detail throughout.)
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