BMW braking system recall contributes to decision to cut back 2024 outlook

NEW YORK -- BMW is lowering sales and earnings targets for the 2024 fiscal year, in a move the luxury German car maker said was partially triggered by hefty expenses of addressing a braking system recall that impacts more than 1.5 million vehicles worldwide.

Munich-based BMW Group said Tuesday that actions related to addressing a faulty integrated braking system, made by a supplier for the company, would reach “a high three-digit million (euro) amount” for the third quarter. Halted deliveries for impacted vehicles not already in customer hands are also expected to negatively impact sales.

A spokesperson for BMW Group, which also owns Rolls-Royce and Mini brands, confirmed to The Associated Press via email that the company first identified the issue during an internal quality check. That prompted a safety recall in February, but since then additional cases have been identified “beyond the scope of the original recall.”

Now, BMW expects that some 1.53 million vehicles across five countries are affected — including about 370,000 in China, 270,000 in the U.S., 150,000 in Germany, 70,000 in Korea and 60,000 in France.

The affected vehicles were produced between June 2022 and August 2024, per BMW, and several models are covered. That includes select BMW X models (excluding X3 and X4), the 5 and 7 Series, Rolls-Royce Spectre, MINI Cooper and Countryman.

Of the 1.53 million affected cars, 1.2 million are already in customer hands — while about 320,000 remain with BMW or in dealer stock. One-third of those vehicles are impacted by individual market delivery stops, according to the company.

BMW's spokesperson says that the company “has developed a diagnostic software to detect the brake fault before it occurs.” If a potential brake fault is detected, that should alert the driver with a warning to visit a dealership as soon as possible to get a system replacement free of charge, the spokesperson added. If a malfunction occurs, which BMW says is “very unlikely,” the system should also revert to “safe mode" — which makes sure that brakes work and meet legal standards, but requires drivers to apply more force when using them.

German auto supplier Continental AG confirmed Tuesday that it makes this integrated brake system for BMW, and that the faulty component can cause the case to rely on its back up level. In a statement, Continental also pointed to diagnostic software available to detect this potential issue "well before it occurs.”

Continental reiterated that the brake system can be replaced if such impairment is detected — but added that it expects “only a small proportion” of the brake systems it delivered to actually need a replacement. The company said it had built accruals in a “mid-double digit million euro area” to cover warranty costs.

Beyond costs tied to this braking system recall, BMW's financial outlook update on Tuesday also pointed to “ongoing muted demand” in China specifically — which the company said is impacting sales volumes as consumer sentiment remains weak, despite stimulus measures from the government.

Citing both recall costs and dwindling demand in China, BMW is cutting its automotive segment's 2024 earnings before interest and taxes margin, an important profitability metric, to 6% to 7% — down from a previous range of 8% to 10%. And the company now expects its annual return on capital employed to be between 11% and 13%, down from 15% to 20%.

BMW also now anticipates a slight decrease in worldwide deliveries for 2024, compared to a slight increase that was previously predicted.

Shares for BMW fell more than 11% by of Tuesday afternoon, while Continental was down over 10%.