BMW shares cratered in Germany after the automaker warned investors it would slash its 2026 margin guidance to as low as 1%, down from a prior estimate of as high as 6%, amid weakening demand in China, Middle East-related pressures, rising energy costs, and a deteriorating consumer backdrop hitting sales and profitability.

BMW now expects its pretax profit to fall sharply this year, versus a prior expectation of a moderate decline, and for deliveries in the auto segment to slide, compared with a previous expectation of flat performance.

Here's the new forecast for the year:

• Sees automotive Ebit margin 1% to 3%, saw 4% to 6%, estimate 4.9% (Bloomberg Consensus)

• Sees Automotive return on capital employed 1% to 5%, saw 6% to 10%

JPMorgan analyst Jose Asumendi called the downgrade a major "wake-up call for the auto industry" and warned that the German luxury automaker must address its compact-segment product strategy in China, where European premium automakers have been priced out of the market.

Asumendi called the downgrade a "radical earnings cut" but noted that BMW is generally executing well. He believes the automaker will likely take one-time charges to downsize its global production footprint, with a particular focus on Europe.

Here is Barclays analyst Christophe Boulanger's first take on BMW's big profit warning:

Shares of BMW in Germany tumbled as much as 12%, the biggest intraday decline in almost two years. For the year, shares are down around 32%.

Shares are trading at Covid lows ...

Citigroup analyst Harald Hendriks explained to clients why his team remains "Neutral" rated on BMW shares:

As for the STXE 600 Auto & Parts Index (which includes names such as BMW, Mercedes-Benz, Volkswagen, Stellantis, Porsche, Ferrari, Renault, Continental, Michelin, Valeo, and others), Europe's auto industry has drifted back to 2020 levels.

Europe's left-wing political elites may want to rethink their strategy of allowing low-cost Chinese EVs to flood the continent before the region's industrial base suffers lasting damage. BMW's warning suggests the turmoil is industry-wide and likely spread across the broader European manufacturing complex. Also, climate policies on the struggling continent have been an utter disaster.