BMW recalls 1.5M cars for braking issues, affecting 2024 outlook plans.

BMW has recently revised its sales and earnings projections for the upcoming 2024 fiscal year, revealing that part of the adjustment stems from significant costs related to a major recall of a braking system that affects over 1.5 million vehicles globally.

The Munich-based automaker announced on Tuesday that the financial implications of addressing a malfunctioning integrated braking system, supplied by a third-party vendor, would amount to “a high three-digit million (euro) amount” for the third quarter. Additionally, paused deliveries of affected vehicles that have not yet reached consumers are expected to further hinder sales performance.

A representative from BMW Group, which also encompasses the Rolls-Royce and Mini brands, confirmed via email that the issue was first recognized during an internal quality inspection. This discovery led to a safety recall initiated in February, but subsequent evaluations have uncovered additional problems that fall outside the parameters of the initial recall.

The updated figures indicate that around 1.53 million cars in five countries are impacted. This includes approximately 370,000 units in China, 270,000 in the United States, 150,000 in Germany, 70,000 in South Korea, and 60,000 in France.

Production dates for the affected vehicles span from June 2022 to August 2024. Several models are included in the recall, such as selected BMW X models (excluding the X3 and X4), the 5 Series, the 7 Series, the Rolls-Royce Spectre, as well as the MINI Cooper and Countryman.

Among the 1.53 million affected cars, 1.2 million are already in use by customers, while about 320,000 remain with BMW or within dealer inventory. The company noted that one-third of these vehicles are currently subject to delivery stops in specific markets.

The spokesperson disclosed that BMW has created diagnostic software to identify potential brake faults beforehand. If any issues are detected, drivers will receive a warning to visit a dealership promptly for a complimentary system replacement. In instances where a malfunction occurs—though deemed highly unlikely—the braking system will default to “safe mode,” ensuring that brakes continue to function according to legal requirements, albeit requiring more effort from the driver.

Continental AG, the German automotive supplier responsible for the integrated brake system, confirmed on Tuesday that a defective component may compel the system to rely on its backup functionality. In its statement, Continental emphasized that the available diagnostic software can identify potential flaws well before they manifest.

Continental also indicated that should an issue be flagged, the brake system can be replaced, noting, however, that it anticipates needing replacements for only a small fraction of its supplied systems. The company has set aside provisions in a “mid-double digit million euro area” to account for potential warranty expenses.

Apart from the financial burden from the recall costs associated with the braking system, BMW’s updated financial outlook also highlighted continued “muted demand” in China. The company acknowledged that this trend is having an adverse impact on sales volumes, even as governmental stimulus efforts aim to bolster consumer confidence.

Due to the combined pressures of recall-related costs and reduced demand in the Chinese market, BMW has revised its automotive segment’s earnings before interest and taxes margin for 2024 to a range of 6% to 7%, a decrease from the previously anticipated 8% to 10%. Furthermore, the firm now estimates that its annual return on capital employed will fall between 11% and 13%, down from the earlier projection of 15% to 20%.

In light of these challenges, BMW expects a slight decline in global deliveries for 2024, contrasting the earlier forecast of a modest increase.

The company’s shares saw a sharp decline, dropping more than 11% by Tuesday afternoon, while Continental’s stock also fell by over 10%.