BMW Group announced on Tuesday that it is lowering its sales and earnings targets for the 2024 fiscal year due to expenses related to addressing a braking system recall affecting over 1.5 million vehicles worldwide. The Munich-based luxury carmaker cited the hefty costs of rectifying the faulty integrated braking system, which was made by a supplier for the company. The recall is expected to reach a high three-digit million euro amount for the third quarter, impacting sales and earnings.
The issue with the braking system was first identified during an internal quality check by BMW Group, prompting a safety recall in February. However, additional cases beyond the scope of the original recall have since been discovered. BMW now estimates that around 1.53 million vehicles across five countries are affected, including significant numbers in China, the U.S., Germany, Korea, and France. The affected vehicles were produced between June 2022 and August 2024, covering various models from BMW, Rolls-Royce, and Mini brands.
BMW has developed a diagnostic software to detect potential brake faults before they occur, enabling drivers to be alerted and visit a dealership for a system replacement free of charge. The spokesperson for the company reassured that even if a malfunction occurs, the system should revert to a safe mode ensuring that brakes work and meet legal standards. Continental AG, the German auto supplier responsible for the integrated brake system, confirmed the issue and highlighted the availability of diagnostic software to detect faults early on.
In addition to the costs associated with the braking system recall, BMW’s financial outlook update also mentioned challenges with muted demand in China, impacting sales volumes and profitability. The company is revising its 2024 earnings targets, lowering the automotive segment’s earnings before interest and taxes margin to 6% to 7%, down from the previous range of 8% to 10%. The annual return on capital employed is now expected to be between 11% and 13%, a decrease from the earlier forecast of 15% to 20%. BMW also anticipates a slight decrease in worldwide deliveries for the year.
Following the announcement of the lowered sales and earnings targets, shares for BMW fell more than 11% on Tuesday afternoon, while Continental AG also experienced a decline of over 10%. The impact of the braking system recall and the subdued demand in China have led to a revision in BMW’s financial outlook for the 2024 fiscal year. The company is working to address the issue promptly to ensure the safety of affected vehicles and maintain customer trust amidst the challenges faced in the automotive industry.
