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BMW’s China strategy: Localisation as Farewell

Okt. 1, 2026

BMW is cutting 8,000 jobs in administration and development and moving the entire value chain for the Chinese market to China. Some commentators read this as proof that Munich, unlike Wolfsburg and Stuttgart, has learned its lesson. A closer look suggests a different reading: localisation in China is less a plan to return to past success than the organisational acknowledgement that such a return is no longer expected.

An interpretation that spread quickly

Since the summer it has been clear that BMW will cut around 8,000 jobs worldwide by the end of 2027. The reduction is to be achieved without compulsory redundancies, through a voluntary severance programme, partial retirement schemes and natural attrition. It mainly affects the so-called indirect functions, meaning administration, research, development and management; production is excluded. From 2028 onwards, the measures are expected to save around one billion euros a year. Of its roughly 154,000 employees worldwide, about 84,000 work in Germany, a large share of them at the Munich headquarters.

At its capital markets day at the end of September, the new chief executive Milan Nedeljković, who succeeded Oliver Zipse in May, presented the strategic framework for these cuts. At its core lies regionalisation: separate models for Europe, the United States and China, and for China the relocation of practically the entire value chain to the country itself. Development, purchasing, production and marketing are in future to be the responsibility of local managers.

Commentators quickly arrived at an interpretation: by cutting management and administration, BMW was showing that, unlike Volkswagen and Mercedes-Benz, it had learned its lesson. Its move away from the Chinese market was taken as further evidence, and so BMW was said to have the better prospects. This interpretation holds up only in part.

A follower, not a pioneer

To begin with, the chronology is wrong. For a long time BMW was regarded as the last major German carmaker without a drastic cost-cutting programme. Mercedes-Benz had already offered severance packages to tens of thousands of employees in indirect functions in 2025 under its „Next Level Performance“ programme. The pattern of sparing manufacturing and concentrating cuts in administration and development is therefore well established in the industry. BMW is following it, not inventing it.

Moreover, the common summary „management and administration“ is imprecise. Development is explicitly affected as well. Job cuts in development cannot simply be read as evidence of lessons learned. They may just as well signal a relocation of development work, and that is exactly what the China strategy suggests.

One detail does count in BMW’s favour. On the sidelines of the capital markets day, the company announced that it would reduce the number of „divisions and associated management functions“ by 20 per cent by mid-2027. Initially this concerns the comparatively senior level of division heads, but the effect is meant to extend to lower management levels as well. Nedeljković justified the move by saying that the Munich organisation was simply too big. Here BMW does differ from its competitors: a management layer is explicitly quantified rather than disappearing into the catch-all category of indirect functions. Its significance should not be overstated, however. According to the company, no large-scale job reduction is attached to it. What is being removed is primarily structures and functions, not necessarily the people who have filled them.

Not independence, but a redistribution of dependence

The second half of the interpretation, that BMW is making itself independent of China as a market, finds no basis in the plans. It probably originates in another announcement: within a few years, BMW intends to export hardly any vehicles to China. That is not a turn away from the market, however, but the flip side of localisation. What is sold in China is to be made there too. The China division is set to grow within the group, and BMW is currently recruiting new engineers there. It is not BMW that is becoming more independent of China, but the Munich headquarters and the German plants that are becoming more independent of the China business, and the China business of Munich. For the domestic sites this means the gradual loss of a sales channel that contributed to capacity utilisation for years.

This leads to an objection to the line of argument itself. Job cuts in Munich’s development function and the build-up of development capacity in China are plausibly two sides of the same relocation. Anyone who counts them as two independent pieces of evidence for a successful realignment is counting a single finding twice.

Dependence in the narrower sense also remains. Nedeljković himself rejects new EU tariffs on Chinese vehicles and argues instead for price agreements between Brussels and Beijing. His reasoning is the risk that China could retaliate by restricting supplies of battery cells, on which the European car industry depends. A company that had detached itself from China would have no need to argue this way.

A market where a foothold is no longer to be found

That leaves the question of how to read localisation itself. The figures speak clearly. In the second quarter of 2026, BMW’s sales in China fell by around a third compared with the same quarter of the previous year, even though its vehicles are now offered there at discounts of several tens of thousands of euros. If price cuts of that magnitude cannot stabilise sales, the problem no longer lies in the price. It lies in the question of why a Chinese buyer should choose a BMW at all.

Moving development, purchasing and marketing for a market entirely into that market implicitly also says: the product developed at headquarters no longer fits there. In this sense, localisation is first of all an admission, and one that was presented at the capital markets day as a new departure.

What localisation cannot buy back

A second point weighs more heavily. The price premium that German premium carmakers were able to command in China for years did not rest on technical quality alone. It rested on a status signal tied to origin and to the reputation of German engineering. That signal has since migrated to Chinese manufacturers such as Huawei with its Aito brand, Xiaomi or BYD, which define their vehicles primarily through software, connectivity and user experience and have thereby redefined what a high-quality car is expected to be.

A BMW developed in China by Chinese teams for Chinese customers and built with Chinese suppliers moves closer to these competitors. In doing so, however, it weakens precisely the feature that once justified the premium. Localisation can lower costs and accelerate development cycles. It cannot buy back lost prestige. At best, BMW will become a good supplier among many in China, with the margins of a supplier among many.

In any case, the approach is not a unique selling point. Volkswagen has been pursuing the same direction for years under the motto „in China, for China“. In 2023 the group acquired a five per cent stake in the Chinese electric carmaker Xpeng and agreed a long-term development partnership. A central role is played by the Volkswagen Group China Technology Company in Hefei, which has developed its own China-designed electronic architecture together with Xpeng. Since March 2026 the ID.UNYX 08, the first jointly developed model, has been rolling off the line there, and a second is in pre-sale. Volkswagen is therefore several years ahead of BMW on this path. If Volkswagen is nonetheless regarded as a laggard, BMW can hardly be presented as the more capable learner on the strength of the same strategy.

Damage limitation rather than a growth strategy

In fairness, one must ask whether there was a better alternative. Withdrawal would also be costly. Since 2003, BMW has operated vehicle plants in Shenyang in north-eastern China through its joint venture BMW Brilliance Automotive; together they form the group’s largest production site worldwide. In February 2022 BMW acquired a 75 per cent majority for around 3.6 billion euros and extended the joint venture agreement to 2040. Even then, the great majority of vehicles sold in China were built locally. Oliver Zipse, then chief executive, linked the move to the expectation that the China success story would continue hand in hand with the joint venture. Four years later, this capacity represents capital tied up in a market where BMW is barely gaining traction. China also remains, for all its weakness, the world’s largest car market. Localisation can therefore also be read as rational damage limitation: an attempt to run an existing investment and a shrinking business at least on a break-even basis.

On this reading the strategy would be sensible, but not a signal of a return to former success. The company’s own expectations fit this picture. For 2026, BMW now expects an operating margin of only 1 to 3 per cent in its automotive business, after previously targeting 4 to 6 per cent. Its traditional range of 8 to 10 per cent is not expected to be reached again until the start of the next decade. After the capital markets day the share price temporarily fell to its lowest level since 2020 and has lost more than 40 per cent since the start of the year. One analyst described BMW under Nedeljković as a „show-me story“, a company that has yet to deliver the proof. At any rate, the capital market is not yet crediting BMW with the lead it is said to have.

How this reading can be tested

The interpretation advanced here, that localisation is a warning sign rather than a turning point, is a thesis and not an established finding. It can, however, be measured against a verifiable criterion: whether BMW will still be able to command a meaningful price premium in China over comparable Chinese vehicles.

A first indication will come from the Neue Klasse, the group’s new electric vehicle platform, and in particular from the pricing of the iX3 at its market launch in China. If sales there stabilise only through further price cuts, the reading would be provisionally corroborated. If, on the other hand, BMW succeeds in achieving prices above those of its Chinese competitors with locally developed models, it would have to be revised.

Until then, there is more to be said for reading localisation in China as what it is organisationally: the handover of a market to an autonomous unit whose task is likely to be less reconquest than the management of a decline in significance. This has little to do with lessons learned and more with the sober acknowledgement that a particular era of German premium carmakers in China has come to an end.

Ralf Keuper

Sources

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