BMW Shares Tumble After Brake Problem Sparks Outlook Cut

BMW AG shares tumbled in Germany on Tuesday after the company slashed its annual outlook due to a faulty braking system from supplier Continental AG, impacting as many as 1.5 million vehicles, which will only drive costs higher for the carmaker.

„The delivery stops for vehicles that are not already in customers hands will have a negative worldwide sales effect in the second half of the year. The Integrated Braking System-related technical actions impact over 1.5 million vehicles and result in additional warranty costs in a high three-digit million amount in the third quarter,” BMW wrote in a press release.

As a result, BMW adjusted the guidance for the 2024 financial year:

• A slight decrease in deliveries versus previous year (previously: slight increase).
• An EBIT margin for 2024 in a corridor from 6% to 7% (previously: 8% to 10%).
• Return on Capital Employed (RoCE) between 11% and 13% (previously: 15% to 20%).

In markets, investors dumped BMW shares in Germany, down 9% to around the mid-point of the 70 euro handle.

BMW also pointed out headwinds have been gathering across the global automotive segment. It said, „Parallel to this effect, the ongoing muted demand in China is affecting sales volumes. Despite government stimulus measures, consumer sentiment remains weak.”

More on the situation from Bloomberg Intelligence:

„BMW’s 2024 auto Ebit margin guidance cut to 6-7% from 8-10% means at least a 20% reduction to consensus auto Ebit. Only half of that is attributable to higher warranty costs from a faulty Continental braking system, and the balance relating to negative pricing, especially in China amid waning demand impacting automakers and suppliers alike. BMW’s rising inventory follows VW’s overcapacity woes and sets a negative 2H tone with EU sales 15% below a 2019 peak and sluggish EV demand.”

And Goldman’s take…

FY24 auto margin now seen at 6-7% – Today (September 10th) BMW took down its FY24 outlook and now expects an automotive EBIT margin of 6-7% vs. 8-10% previously (Visible Alpha Consensus Data 8.3%, GSe 8.7%). The cut to guidance is attributed to an issue with a braking system that has led BMW to stop sale of certain models globally and incremental warranty provisions, in the high 3 digit million amount during 3Q. In addition, BMW notes ongoing muted demand in China negatively impacting volumes.

Potential cut of €2.76bn to cons FY group EBIT – Taking the information at hand, we believe that cons group EBIT for BMW may be subject to negative revisions in the magnitude of 13% to 23%. At the mid-point, we see a potential negative revision of €2.74bn in the automotive segment and c.€30mn in motorcycles. We are surprised by the magnitude of BMW’s warning having noted management’s confidence at 2Q results on 1st August. We remain Neutral rated.

With a broader view here of the global automotive space, the MSCI World Automobiles Index has stalled since peaking in 2021.

A lower interest rate environment will certainly help the industry.