UBS: BMW's 2028 Operating Margin Target Could Be 3%-5%

According to UBS estimates, German automaker BMW may set a target of 3%-5% for its Automotive segment's operating profit (EBIT) margin by 2028, which is below the market's current consensus of 5.1%. The bank believes the company could adopt a more cautious stance on its medium-term targets following three profit warnings related to China.

BMW's Capital Markets Day will take place on September 29-30, with the presentation of new medium-term targets expected on September 30.

UBS analyst Patrick Hummel believes BMW will maintain its long-term operating margin target of 8%-10%, though achieving it may be pushed back to 2030. The bank also estimates that the market's projected margin of 3.7% for 2027 is overly optimistic and that the figure could fall to 2%-3%.

UBS forecasts that BMW's Automotive segment operating margin will fall below 2% in the second half of 2026. The bank expects the main negative factors to materialize in 2027, while the effect of cost cuts gradually increases over the following two years.

Taking 2.5% as the starting point for the 2026 operating margin, UBS calculates that the impact of raw material prices, depreciation and amortization, and exchange rates will create additional pressure of approximately €1.3 billion through 2028. Most of this pressure will be concentrated in 2027. In 2028, BMW will receive a benefit of approximately €700 million as the purchase price allocation (PPA) effect related to its Chinese joint venture gradually winds down.

UBS estimates that if sales volume, pricing, and product mix remain unchanged during 2026-2028, BMW will need approximately €2.3 billion in cost reductions over this period to meet its own guidance.

The roughly 8,000 job cuts already announced by the company will generate approximately €1 billion in annual savings, less than half of the cost reduction volume UBS deems necessary.

The bank also expects BMW's global vehicle sales to remain nearly unchanged overall during 2026-2028. A further decline in sales in China is possible, if growth in other regions is primarily driven by the rollout of new Neue Klasse models.

UBS believes BMW has historically overestimated the outlook for improvements in sales volume, pricing, and product mix, particularly in the Chinese market.

The bank also takes a limited view of the potential for higher shareholder returns. UBS expects BMW to maintain a dividend payout ratio of 30%-40%, using the remaining free cash flow for share buyback programs.

UBS forecasts that restructuring-related cash outflows of more than €1 billion will put additional pressure on free cash flow in 2027-2028. The bank projects approximately €4 billion for 2028, compared with a market consensus of €4.7 billion.

At the same time, UBS does not expect any significant strategic changes at BMW's Capital Markets Day. The bank believes the Neue Klasse project has gotten off to a positive start, including in China, while new CEO Milan Nedeljković will speak about the company's future priorities.

BMW shares closed at €57.88 on September 23, giving the company a market capitalization of approximately €32.4 billion. UBS maintains a "Neutral" rating on BMW shares with a 12-month price target of €70.