Problems with braking system
BMW Cuts Forecast – and Frightens Investors
The car manufacturer BMW had seemed little affected by the crises of other car manufacturers until now. But now the Munich-based company is also worried about the Chinese sales market
© Fotostand / IMAGO
The car manufacturer has to check its models due to potentially faulty brakes. The supplier Conti is to blame. But there are also problems in China.
The Munich-based car manufacturer BMW is cutting its forecast due to problems with a braking system from supplier Continental and the ongoing slump in the Chinese market. The company announced on Tuesday that a slight decline in sales is now expected. Previously, the Munich-based company had predicted a slight increase. The crucial profit margin for BMW in the automotive business is now estimated to be six to seven percent, lower than the previously forecasted eight to ten percent.
On the stock market, BMW shares plummeted and were the biggest losers in the DAX with a drop of more than nine percent. Shares of Continental fell by 8.5 percent.
The trigger for the lowered forecast is problems with the Integrated Braking System (IBS) from Continental, which may not be functioning properly and therefore needs to be checked. According to BMW, more than 1.5 million cars are affected, of which around 1.2 million have been delivered to customers. In these cars, remotely installed diagnostic software can detect the error, which then must be rectified at a workshop. About 320,000 vehicles are still with the manufacturer and cannot initially be delivered. This will dampen sales in the second half of the year, BMW stated.
Brake Assist May Fail
The company estimates the additional costs in the high three-digit million range. However, BMW is likely to seek damages in order to pass at least part of the costs onto Continental. It is unclear how high the additional burdens will ultimately be for the Munich-based company.
A Conti spokesperson explained the defect in detail: Due to the impairment of an electronic component, brake assistance may fail in individual cases. More force may be needed for braking. “Based on the systems that have already been exchanged and our current knowledge, we still believe that only a small percentage of delivered braking systems actually need to be replaced,” he said.
The Consequences for Investors
For shareholders, the damage is yet to become apparent. The question is whether the recall will only result in one-time costs or represent an ongoing liability for the balance sheet. In the first case, this would harm profits and thus the dividend payout for 2024 in the short term, but in the long run, BMW would likely not be affected further. The situation would be different in the case of structural problems if customers were to lose confidence in the braking system of BMW and other car manufacturers. This could influence profits for many years. However, whether this will happen cannot be predicted today.
BMW was not the only car manufacturer whose stocks were on the sell lists on Tuesday. Mercedes and the already struggling Volkswagen Group also ranked among the biggest losers of the day. Mercedes lost more than four percent, and Volkswagen dropped nearly 3.5 percent.
However, BMW shares fell more sharply as the Munich company has issues not only with the braking system but also in the Chinese market. This market is not performing as expected, the company explained. Despite government support measures, caution among buyers persists. This would again be a structural problem, meaning a long-term issue. Mercedes and Volkswagen had already indicated some time ago that they were feeling headwinds here, which is why their stock prices had already priced in the China effect at an earlier time.