BMW Shares Fall After Recall Costs, Low China Demand Prompt Outlook Cuts — 3rd Update

By David Sachs

BMW shares tumbled after the carmaker lowered its sales and earnings targets, saying expensive measures to fix a braking-system problem and muted demand in the world's largest car market would dilute its bottom line.

The German luxury-car maker said costs to address a problem with the braking systems in more than 1.5 million vehicles would land in the high three-digit-million-euro region. Halted deliveries for cars affected by the faulty components would also weigh on earnings, BMW said. Continental said it built the faulty car parts.

Those dents, along with soft car sales in China and mediocre demand for motorcycles in its core markets, prompted BMW to slash its forecasts for profitability and sales volumes on Tuesday.

"Despite stimulus measures from the government, consumer sentiment remains weak," BMW said of the Chinese market.

In afternoon trading in Europe, shares were down 8.9% at 70.76 euros. Shares in Continental, which built the system responsible for the recall, were down 9.1% at 53.42 euros. BMW peer Mercedes-Benz saw shares fall 4.3% at 55.71 euros

BMW has fared better than rivals in sales of electric vehicles worldwide, but its overall sales in the all-important China market region fell 4.8% on year in the second quarter amid fierce competition from homegrown car companies.

Continental built the braking systems, some of which contain a faulty electronic component that causes the car to rely on the backup breaks, the company said Tuesday. A software update will identify which cars contain the problematic brakes and alert owners, who can have the system replaced, Continental said.

The German auto supplier booked a provision in the mid double-digit million euro range to cover the costs of the fix, Continental said in a statement.

BMW originally divulged the problems with the digitally controlled braking system in the spring, but the problem affects more cars than originally understood, a spokeswoman said.

The company slashed its full-year forecast for its earnings before interest and taxes margin in the automotive segment, its key profitability metric. BMW now expects an EBIT margin of 6%-7%, down from 8%-10%.

Return on capital employed, which reflects a company's earnings efficiency, is now expected at between 11% and 13%, down from the original target of 14%-20%, BMW said.

BMW said it expects to take the bulk of the financial hits in the third quarter.

Fierce competition in its motorcycle division in the core China and U.S. markets are also weighing on group results. Group earnings before tax would decrease significantly on flat deliveries, versus BMW's original forecast of a slight decrease, it said.

The premium auto company now expects a slight decrease in worldwide deliveries from last year, having previously expected a slight increase.

Write to David Sachs at david.sachs@wsj.com

(END) Dow Jones Newswires

September 10, 2024 10:33 ET (14:33 GMT)

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