By Dominic Chopping

European auto shares fell Wednesday, dragged lower after BMW slashed guidance due to a deteriorating Chinese market and the spillover effects of the Middle East conflict.

In a statement after market close Tuesday, the German automaker said the Chinese car market worsened in the second quarter, driving intensified competition that has spilled over into the broader Asia-Pacific region. Lower sales in the region have offset higher volumes in Europe and the U.S., it said.

At the same time, the Middle East conflict has impacted BMW's operations more than expected. Energy prices remain high and are hitting the company's costs, while the geopolitical and macroeconomic instability is weighing on consumer sentiment across global markets.

As a result, BMW cut its full-year guidance across a range of key financial metrics. The automotive earnings before interest and tax margin guidance was cut to 1%-3% from 4%-6%, the return on capital employed in the automotive unit was slashed to 1%-5% from 6%-10%, and group profit before tax is now expected to see a significant decline versus a prior expectation of a moderate decrease.

"This is a rare misstep for BMW," analysts at Bernstein said in a note to clients. "The company had reiterated its 4%-6% automotive margin corridor expectation for 2026 at its 1Q26 results on 6 May where it had also printed a 5% auto margin that was ahead of the 4.7% consensus."

BMW said it would now intensify and accelerate its cost-cutting plans, which it said would become visible in the coming years, though it cautioned they would also come with a one-off impact on earnings in the second half.

New BMW Chief Executive Milan Nedeljkovic, who took the helm last month, said the company would adapt its current structures and processes to the drastic downturn in market conditions, moving quickly to become more efficient.

The China and Asia-Pacific struggles are largely macro-driven, indicating a negative read-across for the European auto manufacturers such as Mercedes-Benz and Volkswagen, which could issue similar profit warnings prior to second-quarter earnings, RBC Capital Markets analyst Tom Narayan said.

Importantly, Narayan says the bulk of BMW's restructuring actions are for its European operations, which could include factory closures and headcount reductions, but which doesn't address the company's situation in China.

"That said, with the announcement of the preliminary framework to end the conflict between the U.S. and Iran, we wonder whether the energy cost inflation referenced in the company release could decline in the second half, leaving potential upside to the revised guidance."

BMW shares fell 11%, Mercedes-Benz shares dropped 4.9%, while Volkswagen, Stellantis and Volvo Car shares all fell around 3%.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

June 17, 2026 03:16 ET (07:16 GMT)

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