BMW has spent years arguing that its global manufacturing footprint gives it flexibility when individual markets turn difficult. In 2026, that flexibility is being tested harder than expected. A sharp deterioration in China, higher import duties and pressure on automotive margins have pushed the German premium automaker into a more aggressive restructuring under new CEO Milan Nedeljković.
The response is broader than trimming expenses. BMW plans to produce more vehicles close to the customers buying them, simplify management, reduce model complexity and use artificial intelligence to accelerate work across the company. At the same time, it is preparing distinctly different products for China, Europe and the United States. The objective is straightforward but difficult: rebuild profitability without sacrificing the technology and new vehicles BMW believes will determine its position in the next decade.
Profit Pressure Has Made the Old Playbook Harder to Maintain
BMW entered 2026 expecting a difficult environment, but its first-half numbers showed how quickly conditions had deteriorated. Group revenue reached €62.3 billion during the first six months, while earnings before tax dropped 29.4% year over year to €4.045 billion. The automotive business was hit particularly hard. Second-quarter automotive EBIT fell to €629 million, producing a margin of only 2.3%, compared with 5.4% a year earlier. BMW said lower volumes, intense competition, foreign-exchange effects, depreciation and weaker conditions in China all weighed on performance. Import duties affecting the U.S. and European businesses accounted for roughly 1.25 percentage points of the second-quarter automotive margin.
The deterioration had already forced BMW to reset expectations in June. Its 2026 automotive EBIT-margin forecast was lowered from 4%–6% to just 1%–3%, while the company shifted from expecting moderately lower group pre-tax earnings to a significant decline. Automotive free cash flow is still expected to exceed €2.5 billion, but that is a long way from the cash-generation levels BMW ultimately wants to restore. The size of that gap explains why management is now talking about structural changes rather than simply waiting for car demand to improve. Cost reductions already saved roughly €900 million through the first six months, yet the earnings decline showed that incremental efficiencies alone were not enough.
China Has Become the Centre of BMW’s Localization Push
Few numbers illustrate BMW’s current challenge better than its Chinese deliveries. The group sold 261,773 vehicles in China during the first half of 2026, a decline of 20.4% from the previous year. The slide accelerated dramatically during the second quarter, when deliveries dropped 30.2% to 117,815 vehicles. BMW noted that the overall market relevant to its products was also down sharply, but that offers only limited comfort. China was once one of the strongest profit engines for German premium automakers, and local brands are now competing aggressively on electric technology, software, features and price.
BMW’s answer is to become substantially more local rather than retreat. The company intends to expand Chinese production in higher-volume segments and increasingly reserve imported vehicles for categories where margins justify the extra cost. By 2030, at least 95% of BMW vehicles manufactured in China are expected to be specifically tailored to Chinese customer preferences, up from just under 90% today. Management is even studying whether China-built BMWs could be exported into Southeast Asian markets. It marks an important change in thinking: the Chinese manufacturing operation is increasingly being treated as a regional hub with its own products, technologies and potential export opportunities rather than simply an extension of BMW’s European product system.
Spartanburg Gives BMW Protection From Tariffs — but Not Immunity
BMW enters the era of higher U.S. trade barriers with an advantage many imported premium brands do not have: an enormous American manufacturing operation. Plant Spartanburg in South Carolina assembled 412,799 BMW X models in 2025, the third-highest annual output in its history. More than 52% of BMW vehicles sold in the United States that year were produced there. The plant can build as many as 450,000 vehicles annually and exported nearly 200,000 vehicles worth about US$9 billion in 2025. That local footprint means a significant portion of BMW’s most important U.S. SUVs does not have to cross the Atlantic before reaching American buyers.
Still, BMW’s own financial statements show that localization cannot eliminate tariff exposure. The company expects higher tariffs to reduce its 2026 automotive EBIT margin by around 1.25 percentage points, after a roughly 1.5-point impact in 2025. Vehicles, components and materials continue to move across borders within BMW’s global network. Spartanburg itself exports about half of its production, illustrating how interconnected the system remains. With the factory now described as operating at full capacity, BMW is pursuing greater regionalization of luxury-SUV production elsewhere rather than relying indefinitely on South Carolina alone. It is also planning a new high-end SUV positioned above the X7, underlining how important the profitable U.S. luxury-truck market remains to the recovery strategy.
Management Layers and Thousands of Office Jobs Are Being Cut
Localization is only one side of BMW’s response. The company is also attacking internal complexity. By the middle of 2027, BMW plans to reduce the number of divisions and associated management roles by 20%, with comparable reductions expected at organizational levels below them. The restructuring includes the elimination of more than 100 management positions, according to reporting on the company’s plans. BMW is also simplifying its vehicle portfolio and eliminating some variants that management believes no longer generate sufficient returns. One confirmed example is the BMW 2 Series Active Tourer, which will not receive a direct successor under the current plan.
The organizational overhaul follows an earlier workforce-reduction programme expected to shrink employment by roughly 8,000 positions by the end of 2027. The programme is focused largely on administration and development, particularly in Germany, rather than factory workers. BMW and employee representatives agreed to rely heavily on voluntary departures and natural attrition. The distinction matters because BMW is simultaneously spending heavily on manufacturing. Cost reduction is therefore not simply synonymous with closing factories or abandoning Germany. Management is trying to remove layers of decision-making and overhead while retaining industrial capacity for a major product renewal. Nedeljković has argued that the changes amount to a broader repositioning of BMW for tougher competition, rather than a conventional short-term savings exercise.
Artificial Intelligence Is Being Asked to Do More Than Power the Dashboard
Artificial intelligence occupies an unusually prominent place in BMW’s restructuring. The company plans to use AI across much more of the value chain, extending from early technical requirements through vehicle testing and final release. Other areas identified for greater automation and AI-supported work include development, purchasing, sales and aftersales. For a company trying to reduce management layers while bringing dozens of new and updated vehicles to market, faster engineering and decision-making have a clear financial appeal. The objective is not simply to add another digital feature inside the car, but to change how quickly BMW itself can develop products and operate.
China provides perhaps the clearest example of how that philosophy is already becoming visible to customers. Around 70% of the Chinese version of BMW Operating System X is developed in local centres. BMW has been working with Chinese technology companies including Alibaba, DeepSeek, Amap and Huawei on areas such as artificial intelligence, voice interaction, navigation and ecosystem integration. It is also working with Momenta on China-specific driver-assistance technology. The strategy acknowledges a reality that became difficult for European automakers to ignore: a globally standardized software package is no longer necessarily sufficient in a market where local digital ecosystems and customer expectations evolve extremely quickly.
One Global BMW Lineup Is Giving Way to More Regional Products
The next stage of BMW’s product plan increasingly resembles three strategies running in parallel. Europe is scheduled to receive a new entry-level battery-electric model from the Neue Klasse family in 2028, giving BMW another way to compete for buyers below its most expensive EVs. The United States is moving in the opposite direction, with BMW preparing an SUV positioned above the X7 to capitalize on demand for large, high-margin luxury vehicles. China, meanwhile, is getting locally developed long-wheelbase versions of vehicles such as the iX3 and i3, with software and driver-assistance functions specifically designed around Chinese preferences and road conditions.
Those regional differences sit inside a much larger product offensive. BMW has said Neue Klasse technologies will spread through more than 40 new or updated models by 2027. That process is already underway with the electric iX3 and i3 and the latest 3 Series generation. The strategy gives BMW flexibility to keep combustion engines, plug-in hybrids and battery-electric models alive where demand supports them while sharing newer technology across the portfolio. That flexibility could prove valuable during an unusually uneven transition to electric vehicles. It also creates complexity, however, making the company’s simultaneous push to reduce unnecessary derivatives and simplify internal processes increasingly important.
BMW Is Setting a Long Road Back to Its Traditional Profit Margins
BMW is not promising a rapid financial rebound. Its new targets effectively acknowledge that the company expects several years of rebuilding. For 2028, the automaker is targeting an automotive EBIT margin of 3%–5% and automotive free cash flow of more than €5 billion. That would represent a meaningful improvement from the 1%–3% margin range and more than €2.5 billion in free cash flow currently targeted for 2026, but it would still leave BMW well below the profitability levels historically associated with its premium-car business.
The bigger objective comes at the beginning of the next decade. BMW wants the automotive margin back inside its longstanding 8%–10% strategic range and automotive free cash flow above €7 billion. Those targets put measurable numbers around the restructuring. More localized manufacturing should reduce logistics, trade and market-mismatch risks; fewer organizational layers should lower overhead; a tighter model portfolio should improve returns on development spending; and AI is expected to raise productivity. None of those gains is guaranteed. The gradual timetable itself signals how much management believes has changed. BMW is effectively telling investors that restoring premium-brand economics in the current global market requires a structural rebuild rather than a normal cyclical recovery.
Cutting Costs Does Not Mean BMW Is Stopping Investment
The contrast at the heart of BMW’s strategy can be seen clearly in Germany. While office and management positions are being eliminated, BMW announced around €2 billion of investment tied to production of the new 3 Series. Approximately €1 billion has gone into the Munich and Dingolfing vehicle plants, while another roughly €1 billion has been invested in the new Irlbach-Straßkirchen battery facility in Lower Bavaria. The eighth-generation 3 Series will be produced in Munich and Dingolfing, while the new battery operation will supply sixth-generation high-voltage systems. BMW says roughly 18 million 3 Series vehicles have been produced since 1975, including about 15 million in Germany.
That combination — reducing white-collar structures while continuing to modernize factories — helps explain what BMW means by becoming more resilient. The company is not attempting to concentrate everything in one low-cost manufacturing base. It is moving toward stronger regional production centres in China, North America and Europe while keeping technology and manufacturing investments close to their primary markets. BMW also plans additional partnerships, potentially including cooperation with European competitors, to secure critical raw materials and semiconductor supplies. The gamble is that a more regional, less bureaucratic BMW can respond faster when tariffs, technology or consumer preferences change. After the shocks of 2026, flexibility has become as important to the recovery plan as outright cost reduction.
