By Rachel MoreBerlin — Shares in BMW fell about 7% on Wednesday to their lowest since late 2020 after the German carmaker issued a profit warning that surprised some analysts and highlighted the challenges facing the broader vehicle sector. The guidance cut late on Tuesday made BMW one of the first European carmakers to reveal the impact that weakness in China’s domestic car market, the world’s biggest, and pressures arising from the Iran war are expected to have on its 2026 targets.Wednesday’s price fall weighed on shares across the European auto sector, including German rivals Volkswagen and Mercedes-Benz.“This is the tip of the iceberg,” independent analyst Matthias Schmidt said, adding that others were “not immune”.Some investors had already challenged BMW’s outlook given the possible impact of fighting in the Middle East on prices and consumer sentiment.Still, analysts at Deutsche Bank and Jefferies both said BMW’s outlook cut was deeper than expected.In addition to lowering its operating auto margin to 1%-3% from 4%-6% previously, BMW said it would intensify cost-cutting, with a negative one-off in the second half of 2026.It is a bad start for CEO Milan Nedeljkovic, who took over from long-time leader Oliver Zipse last month.Deutsche Bank analysts said BMW’s reputation as the “steady Eddy” among its peers had taken a hit.Brokerage Jefferies said it expected the overhaul would focus on BMW’s German operations but may also accelerate localisation in markets, including China and North America, to protect margins.That could result in the announcement of a 10%-15% capacity cut at the company’s capital markets day later this year, JP Morgan analysts wrote.A BMW spokesperson said it was too early to comment on future measures but that capacity reductions were being considered.Industry reassessmentOther automakers are also being forced to rethink.Oliver Blume, CEO of Volkswagen, Europe’s biggest carmaker by sales, has warned that the traditional export model that buoyed Germany’s auto industry for years no longer delivers. It has undertaken a major restructuring that has embedded the company more deeply in China, where local brands have taken market share from foreign imported autos in recent years, increasingly taking aim at the premium market. Steep competition in China has only intensified after a downturn in domestic car sales ​extended into an eighth consecutive month in May — and that competition is set to spill over into Europe.“We could see Chinese carmakers double down on Europe even more now, given the fact they’re going to mitigate on the domestic market slowing down,” Schmidt said.