BMW lowers profit forecasts – Challenges from brake systems and China business

The Munich-based automobile manufacturer BMW has lowered its sales and profit expectations for the current year. The reasons for this include issues with supplier parts and weak sales figures in China. According to the company, pre-tax profit is expected to decline by at least 10% compared to the previous year. A faulty brake system produced by a supplier affects over 1.5 million vehicles and caused warranty costs amounting to several hundred million dollars in the current quarter. Due to the problem, BMW has halted the delivery of 320,000 already manufactured cars, which will negatively impact global sales figures in the second half of the year. Additionally, there is the persistently weak demand in China, where BMW originally had more optimistic short-term forecasts compared to competitors. "Despite government support measures, purchasing reluctance remains," it was stated from company circles on Tuesday. Accordingly, BMW management also revised sales expectations downward on the same day. The EBIT margin in the automotive sector is now expected to be only between 6% and 7%, down from the previously projected 8% to 10%. Pre-tax profit is also expected to fall significantly below last year's level. Last year, BMW sold 2.55 million cars, achieving an EBIT margin of 9.8% and a pre-tax profit of €17.1 billion. BMW did not name the supplier of the faulty brake system but announced that it would examine claims for compensation. Between 3% and 5% of the delivered components are defective, but all must be checked. However, the German supplier Continental declared that it produces the affected brake system for BMW and will partially replace it. The function of an electronic component could be impaired, but the braking performance always exceeds legal requirements, according to Continental. Following the profit warning, BMW's shares fell by nearly 8% in the afternoon, while Continental's shares dropped 7%. Other automobile stocks also came under pressure. The issues at BMW come at a challenging time for the entire German automotive industry, which is struggling with rising costs, declining sales in China, the challenges of switching to electric drives, and weak demand for electric vehicles in Europe. Industry leader Volkswagen has already warned of possible plant closures, while Continental has announced large-scale job cuts. Suppliers like ZF also plan massive job reductions, and industry heavyweight Bosch has started a cost-cutting program.