German carmaker BMW has announced a downgrade to its full-year outlook after a braking system malfunction led to a recall of over 1.5 million vehicles. The affected braking system, supplied by Continental, is used in various BMW models, including the Mini Cooper, Countryman, and Rolls-Royce. The company predicts a significant drop in group earnings before tax as a result of the issue, causing BMW’s shares to plummet by 11% and hitting a four-year low.
The announcement comes as the European car industry faces turmoil, with Volkswagen considering closing its German factory. Continental AG, the supplier of the faulty braking system, also saw a sharp decline in shares following the news. BMW has revised its forecasts for 2024, expecting a slight decrease in car deliveries, and has adjusted its EBIT margin and return on capital employed expectations.
The company highlighted that the braking system issues will result in additional warranty costs amounting to several hundred million euros in the third quarter. BMW also pointed out sluggish demand in China, impacting sales globally. The competitive landscape in key markets like China and the USA is affecting both volume and price realization for the company.
The European car-making industry is facing economic challenges from rising labor costs, the transition to green energy, and competition from Chinese electric vehicles. The proposed new tariffs on Chinese EVs by the EU could lead to retaliatory measures affecting European-made gasoline car exports to China. Despite the rise of electric vehicles in China, there is still high demand for imported luxury cars from Germany.
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