BMW is lowering sales and income targets for fiscal 2024, in a move the German luxury automaker said was partly prompted by the huge costs of addressing a brake system recall affecting more than 1.5 million vehicles worldwide.
Munich-based BMW Group said Tuesday that actions related to addressing a defective integrated braking system made by a supplier to the company will amount to “a high three-digit million (euro)” in the third quarter. The suspension of deliveries of affected vehicles that have not yet reached customers is also expected to have a negative impact on sales.
A spokesperson for BMW Group, which also owns the Rolls-Royce and Mini brands, confirmed to The Associated Press by email that the company first discovered the problem during internal quality checks. That prompted a safety recall in February, but since then, additional cases have been identified “beyond the scope of the initial recall.”
BMW currently expects about 1.53 million vehicles in five countries to be affected — including about 370,000 in China, 270,000 in the United States, 150,000 in Germany, 70,000 in South Korea and 60,000 in France.
The affected vehicles were built between June 2022 and August 2024, according to BMW, and some models are covered under warranty. They include certain BMW X models (except the X3 and X4), 5 and 7 Series, Rolls-Royce Spectre, MINI Cooper and Countryman.
Of the 1.53 million vehicles affected, 1.2 million have been delivered to customers — while about 320,000 are still in BMW or dealer inventory. A third of those vehicles are affected by individual delivery stoppages, according to the company.
A BMW spokesperson said the company “has developed diagnostic software to detect brake failures before they occur.” If a potential brake failure is detected, it will alert the driver with a warning to get to a dealer as soon as possible to have the system replaced free of charge, the spokesperson added. If a malfunction does occur, which BMW said is “highly unlikely,” the system will also revert to a “safety mode”—which ensures the brakes are working and meet legal standards, but requires the driver to apply more force when applying them.
German auto supplier Continental AG confirmed Tuesday that it makes this integrated braking system for BMW and that the faulty part could cause the clutch to rely on its backup level. In a statement, Continental also pointed to diagnostic software available to detect this potential problem “before it occurs.”
Continental reiterated that the brakes can be replaced if such a deterioration is detected — but added that it expects “only a small percentage” of the brake systems it ships will actually need to be replaced. The company said it has built up reserves in the “mid-double-digit million euro region” to cover warranty costs.
In addition to the costs associated with this brake recall, BMW’s financial outlook update on Tuesday also pointed to “weak demand” in China in particular — which the company said is impacting sales volumes as consumer sentiment remains weak, despite government stimulus measures.
Citing both recall costs and weaker demand in China, BMW is cutting its 2024 automotive segment EBIT margin, a key profitability metric, to 6% to 7% — down from 8% to 10% previously. And the company now expects annual return on capital employed to be 11% to 13%, down from 15% to 20%.
BMW also now predicts global deliveries will fall slightly in 2024, compared with a slight increase previously predicted.
Shares of BMW fell more than 11% on Tuesday afternoon, while Continental shares fell more than 10%.
