When an automotive CEO names AI as the tool to grow margins, call me a little bit skeptical. That’s essentially what new BMW CEO Milan Nedeljković and other executives highlighted recently at the company’s recent capital markets day.
Naming AI as the tool to improve a business today reminds me of the dotcom era, when many companies believed the internet, or even “dotcom” in the company name, would ease investor concerns about their business. The technology was real then. The technology is real now. The question is whether the label or the tool addresses the business problem.
At its capital markets day, BMW said the efficient use of AI will help it become more agile and effective, with fewer management layers and faster vehicle development, as the Wall Street Journal’s Dominic Chopping reported. CFO Walter Mertl called agentic AI a “game-changer” for leaner structures and faster decision-making, according to Bloomberg.
Prior BMW results have shown its automotive EBIT margin at 9.8% in 2023. Its margin fell to 5.3% in 2025. BMW is now projecting its 2026 margin only to be between 1% and 3%. BMW is a premium automaker, selling premium vehicles. A premium automaker with a 1% margin is not running a premium automaker business.
Even BMW seems doubtful, at least in the near-term. Tim Loh of Bloomberg reported that BMW expects “to be back within its long-term auto-margin target of 8% to 10%” only by 2030.
What is Really Driving BMW Margin Downward?
When BMW cut its 2026 margin guidance, it pointed to an accelerating decline in China’s automotive market along with the economic fallout from the Middle East conflict according to a Quartz report by Colleen Cabili. CFO Mertl said that tariffs took about 1.5 points off BMW’s 2025 margins. I assume tariffs continue to be a drag on the automaker’s profitability today.
In addition to the China business, the conflict in the Middle East, and tariffs, there’s a fourth pressure on the way that is sure to have a negative impact on BMW’s business: Chinese competition in the European market.
In a September interview with the Frankfurter Allgemeine Zeitung as reported by Motor1, CEO Nedeljković said some Chinese cars are priced in Europe at levels that are “aus betriebswirtschaftlicher Sicht nicht nachvollziehbar,” which by my translation means, “not understandable from a business perspective.”
To me this looks like dumping. It’s Chinese automakers exporting vehicles to Europe at unreasonably low prices to relieve what is unsustainable overcapacity in the China auto sector. For those believing Chinese automakers should have unfettered access to the U.S. market, need only to look at the impact of that access on Europe’s automakers. But that’s a topic for a different memo.
Do the Management Cuts Fix the Margin?
The most visible part of the AI announcement is the management cuts. BMW will cut divisions and management roles by 20% in the middle of next year, according to Bloomberg. But management cuts will not fix BMW’s margin challenges.
China is where AI at BMW might have to earn its keep. The company said the market decline accelerated in the second quarter, particularly for non-electric vehicles. Some shareholders and analysts told Reuters BMW moved too slowly in a market where local rivals can develop an electric car in as little as 18 months. Could AI shorten BMW’s development cycle? If so, it won’t change what a Chinese buyer will pay for a car, however.
In Europe, Chinese brands took 11.3% of registrations from January through August and delivered 84% of the market’s growth, according to the Center of Automotive Management. Yet, BMW Group’s European deliveries rose 7.6% in the second quarter. The China-automakers-in-Europe threat has not yet impacted BMW’s European sales. But like in China, AI will not change a competitor's price in Europe either.
Did Someone Write BMW’s AI Story?
I have no evidence about which outside consulting firm, if any, helped shape BMW’s capital markets day message. This is a guess. But the story looks familiar.
BMW’s plan follows what is becoming a common template from companies touting how AI will flatten management layers, speed decisions, and assist firms to do more with fewer people. Bloomberg noted that UPS cut 12,000 managers, and Lufthansa plans to slash 4,000 administrative jobs with the implementation of AI.
Nedeljković became CEO in May and BMW cut its guidance in June. By September 30, there’s an AI implementation plan to help restore its premium margin.
BMW has not said how AI changes China demand, Chinese pricing in Europe, tariffs or the Middle East conflict, which are the pressures its own disclosures point to.
The AI label or AI the tool questions will be settled the way it was after the dotcom era, by results. For BMW, that means a margin that climbs back toward its 8% to 10% target, not the story about getting there.
If you have a perspective or disagreement, reply directly. I read every response.
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