German automaker BMW announced on Tuesday that it is recalling approximately 1.5 million vehicles due to brake problems, prompting the company to revise its financial outlook for the year and lower its profitability guidance.
The recall is expected to have a significant negative impact on worldwide sales in the second half of the year.
The company stated that the financial repercussions for the third quarter would be in the “high three-digit million” euro range. The announcement led to an 8% drop in BMW’s shares, affecting other major European automakers such as Mercedes-Benz, Volkswagen, Stellantis, Porsche Holding, and Renault, which saw declines of 4% to 5%.
BMW attributed the downward revision to challenges in its core automotive segment, including delivery stops and technical actions related to the Integrated Braking System (IBS) provided by Continental. In a statement, Continental noted that only a “small proportion” of the braking systems it supplies to BMW will require partial replacement due to an electronic component that may be impaired.
The automaker also highlighted ongoing weak demand in China, which has further affected sales. Despite government stimulus measures, consumer sentiment in the world’s second-largest economy remains subdued. BMW indicated that it anticipates a slight decrease in deliveries, revising its previous expectations of growth.
In 2023, BMW, along with its Rolls-Royce and Mini brands, reported total deliveries of 2.56 million vehicles. The company has faced additional challenges, including a separate recall of 1.4 million vehicles in China due to faulty airbags, as announced by the country’s market regulator.
The latest recall and financial outlook adjustments come amid a broader downturn in the automotive sector, with competitors like Volkswagen considering factory closures in Germany due to similar market pressures.
BMW’s revised earnings before interest and taxes (EBIT) margin is now projected to be between 6% and 7% for 2024, down from a prior forecast of 8% to 10%.
