BMW slashes 2024 profit outlook over Continental brake issues, China market slump

German automaker BMW has cut its 2024 profit margin outlook on Tuesday over slump in demand in the Chinese market and issues in the braking system supplied by Continental. This has resulted in a 12% dip in the carmaker's shares, sending them to a near two-year low. It is in fact on the track to become its biggest intra-day loss in four and half years, while Continental shares were also down more than 10%. This has resulted in both the companies becoming the top decliners on Germany's benchmark DAX and also dragging down European auto stocks.

A component related issue in the braking system has resulted in delivery hold-ups and repair costs, affecting more than 1.5 million cars. This would negatively affect the sales of the company in the second half of 2024. Around 1.2 million of these vehicles have been already delivered to clients and can be remotely checked for faults via over-the-air software. However, the remaining 320,000 vehicles, which have not yet been handed over will cause a delivery backlog for the carmaker.

In warranty costs alone, BMW will have to incur "a high three-digit million amount" in the third quarter as a result. Continental too has set aside provisions in the mid double-digit million euro range to cover the warranty costs. In a separate statement, the car supplier said that only a "small proportion" of the braking systems it produces and supplies to BMW would be partially replaced due to an electronic component that it said is possibly impaired.

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Another major reason affecting BMW's profit margin outlook for this year is the ongoing muted demand in China, which is affecting sales in the country. With this, BMW has joined the group of automakers already facing difficulties in the world's second-biggest economy, which is also the world's largest auto market. "With China only getting tougher, and BMW overexposed to China, and with H2 recovery expectations looking a bit optimistic, it remains tough to see the positive catalyst for BMW," Citi analysts wrote.

As a result, BMW now expects its margin on earnings before interest and tax to be between 6% and 7% for 2024, having previously guided for a figure between 8% and 10%. It states that deliveries are now expected to fall slightly this year, while the group had previously forecast a slight increase.