BMW investors were wary but reassured by the company’s restructuring plan but the share price, which has fallen more than 40% this year, shows no sign of reviving while competitive pressures are likely to provide big hurdles to jump.

BMW’s Capital Markets Day meeting in Munich in late September included talk about using artificial intelligence to help streamline its operations, which, according to investment bank UBS, might produce big new revenue streams for it, and perhaps the rest of the auto industry.

BMW set an automotive profit target of between 3 and 5% by 2028, up from its latest 2.3%, which sounded achievable, according to analysts. The longer-term target, to return to the traditional 8 to 10% target profit margin range, was received with some scepticism, not least because the competitive threat from China shows no signs of slowing down.

A big new luxury SUV above the X7

BMW also announced management cuts and a restructuring plan centred on AI. It will stop making the 2 series Active Tourer and a diesel version of its new 3-Series sedan, while adding an entry-level electric version of the 1-Series and a big new luxury SUV above the X7, aimed at wealthy U.S. buyers. BMW said it was trying to rationalize an overly complex new model offering, shorten lead times, deepen supplier relationships and right-size its dealer network.

“The 3–5 per cent figure is certainly realistic, particularly in view of the cut in investment, but of course still well below the basic margin expectations of pampered premium manufacturers,” said Frank Schwope, automotive consultant and lecturer at FHM Berlin.

“A return to 8–10 per cent is possible in individual years but is unrealistic in the long term given the new competitors and the fact that German manufacturers remain a work in progress. Moreover, no one can predict the future and know what crises or similar challenges lie ahead in 2030. The fact is, however, that autonomous driving will likely be widely rolled out by then, and the next disruption is just around the corner,” Schwope said in an email exchange.

Investment researcher Bernstein described the news as the start of a healing process, retained its €82 share price target and “Outperform” rating.

Investment bank UBS had expected the 3-5% profit margin guide for 2028 and held its “Neutral” rating, with a €70 share price target. It was intrigued by BMW’s reference to the non-auto opportunities in AI “which could be very transformative for BMW and substantially affect future capital allocation,” UBS said in a report.

Could AI fundamentally transform BMW, and the industry?

“The lack of structural growth, some investors would even argue, structural decline, is a key strategic challenge for incumbent (manufacturers). CEO Milan Nedeljkovic said that BMW is exploring non-auto growth options, but not in the way we‘ve heard before from others,” UBS said.

"He thinks that BMW is a leading European company in the field of AI, in terms of deploying it in the organization as well as integrating it in its cars for cutting-edge technology. His pitch is that BMW runs the brain of the car, including the entire ecosystem backing it, and he thinks this could be leveraged in other use cases like robotics. Nothing has been decided yet, but such a step could fundamentally transform the group, in our view, adding growth potential but with high uncertainty about (return on investment),” the report said.

UBS said BMW was in the early stages of its AI plans, while other European manufacturers hadn’t expressed similar plans, which it called “potentially transformative.”

Investment researcher Jefferies was not impressed with the targets, while the 8-10% after 2030 was “aspirational, given industry turmoil”. Jefferies rates the shares as a “Hold”.

“We left (BMW HQ) Munich somewhat reassured but also wondering if BMW is not too confident about its strategic difference and technology,” Jefferies said in a report.

BMW and its German counterparts have an automotive business model that no longer works, according to a recent report from Professor Ferdinand Dudenhoeffer called “BMW and the German Auto Industry – The China Problem” .

“The “China Problem” is not unique to BMW; it is a challenge facing all German automakers. The old business model – developing a car in Germany then building a long-wheelbase version in China a year later – no longer works. VW appears closest to a solution, whereas, in our assessment, BMW is still a long way off,” Dudenhoeffer said in the report.

This will come as no surprise to BMW shareholders. The share price has slid 43% this year as it became clear that what had been almost a license to print money in China was reversing, while the Sino threat gathered pace in Europe. The shares closed Monday at €54.20, off 0.2%.

BMW investors had hoped that only lesser mass-market breeds like Renaults, Fiats, Peugeots and VW’s own brand would succumb to Chinese value-for-money temptations. The thoroughbreds of Porsche, Audi, Mercedes and BMW surely would not be threatened by names like Hongqi, Yangwang, NIO and Zeekr. But a BMW iX3 or Porsche Panamera lookalike at 30 to 50% off will turn the heads of the most patriotic Europeans.