BMW posts profit warning on recall of braking system and weak Chinese demand

By Louis Goss

Bayerische Motoren Werke on Tuesday said slumping demand in China and a decision to recall cars fitted with a faulty braking system will have a significant impact on its profitability, in a rare warning that caused shares in the German car maker to drop.

The Munich headquartered company said the push to recall more than 1.5 million cars that are fitted with a faulty integrated braking system (IBS), will see it take an expected "high three-digit million" hit in warranty costs in the third-quarter of 2024.

BMW said its overall sales will also suffer due to a decision to halt deliveries of all cars that use the faulty IBS, which the company said is provided by a third-party supplier.

The carmaker added that "muted demand" in China will drive down its car sales even further, as it warned consumer sentiment in the country remains weak, despite the Chinese government's stimulus measures.

The manufacturer also said it expects a drop in sales of its motorcycles as a result of a slump in prices and a drop in deliveries in core markets including China and the U.S.

Bayerische Motoren Werke (XE:BMW) shares, listed in Frankfurt, fell 7% on Tuesday having lost 29% of their value in the year-to-date.

In its automotive segment, BMW Group said the impacts of the IBS recall and muted Chinese demand combined will see it achieve an earnings before interest and tax (EBIT) margin of 6% to 7% compared to the previously anticipated 8% to 10%.

This will see return on capital employed (ROCE) in BMW's automotive segment sit within the 11% to 13% range, compared to previous forecasts it would achieve ROCE from the segment of 15% to 20%.

In its motorcycles segment, BMW said it also expects its EBIT margin will drop from an expected 8% to 10% to a new range of 6% to 7%, as it said ROCE from the division will now be 21% to 26% compared to the 14% and 16% figure.

BMW said that overall this will lead to a significant decrease in its third quarter pre-tax profits, which it is preparing to publish on Nov. 6.

-Louis Goss

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09-10-24 0802ET

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