BMW has downgraded its full-year outlook following a braking system malfunction that led to a recall of more than 1.5 million vehicles.
ADVERTISEMENTGerman carmaker BMW has weakened its 2024 guidance due to a braking system issue, which will result in a recall of more than 1.5 million vehicles.
The affected braking system, supplied by Continental, is used in several BMW models, including the Mini Cooper, Countryman, and Rolls-Royce. Continental has indicated that only a "small proportion" of the braking systems it supplies to BMW are faulty.
As a result, BMW has stated that its group earnings before tax will see a significant fall.
The announcement led to BMW's shares plummeting by 11%, reaching a four-year low on Tuesday.
This added to the recent turmoil in the European car industry, brought about by Volkswagen's considering closure of its German factory last week. Continental AG's shares also fell sharply, down by as much as 10%, marking the largest one-day drop since March 2020.
BMW downgrades 2024 outlook
In a press release issued on Tuesday, BMW announced a revised forecast for 2024, anticipating a slight decrease in car deliveries.
The company has also adjusted its EBIT margin expectations, now projecting a range of 6% to 7%, down from the previous forecast of 8% to 10%. Furthermore, the return on capital employed has been downgraded from the earlier range of 15% to 20% to a revised range of 11% to 13%.
BMW stated: "The delivery stops for vehicles that are not yet in customers' hands will have a negative impact on global sales in the second half of the year.
"The technical issues related to the braking system affect over 1.5 million vehicles and will result in additional warranty costs amounting to several hundred million euros in the third quarter."
The company also highlighted that sluggish demand in China is impacting sales, noting: "Despite government stimulus measures, consumer sentiment remains weak."
The competitive landscape in core markets, including China and the USA, was significantly affecting both volume and price realisation, BMW added.
The negative impact is expected to be more pronounced in the third quarter compared to the fourth quarter of this year.
Car sector slump weighs on European stock markets
BMW's recent announcement represents another setback for the European car-making industry, coming in the wake of Volkswagen's consideration of closing its German factory and ending job security agreements.
This decision has sparked a standoff, as unions have rejected the proposal, as half of the seats on Volkswagen's supervisory board are held by labour representatives.
During its second-quarter earnings call, Volkswagen noted that it would need to make substantial cost cuts in the second half of the year, as margins in the first half were deemed "too low".
ADVERTISEMENTVolkswagen's shares fell by 2.7% on Tuesday, hitting their lowest level since March 2020.
The Automobiles & Parts sector in the Stoxx Europe 600 Index dropped by 3.84%, contributing to a 0.48% decline in the Stoxx 600 Index. Year-to-date, the auto sector has fallen by 12%, while the Pan-European Stoxx 600 Index has risen by nearly 6%.
European car manufacturers are facing economic headwinds from rising labour costs and the transition to green energy, coupled with competition from Chinese electric vehicles flooding local markets.
The EU's proposed new tariffs on Chinese EVs could provoke retaliatory measures affecting European-made gasoline car exports to China, which accounts for a quarter of Volkswagen's global sales.
ADVERTISEMENTDespite the surge in electric vehicles in China, many high-end cars continue to be imported from Germany.
