In China, the carmaker’s business is weaker than expected – and now there is also a problem with supplied brakes in 1.5 million cars. This is ruining BMW’s business year.
The car manufacturer BMW has lowered its sales and profit expectations for the current year. The reasons for this are recalls and delivery bans due to problems with supplied parts, as well as weak sales figures in China. This means that profit before taxes is likely to fall not just slightly compared to the previous year, but by at least ten percent.
According to BMW, the problems with a supplied braking system affect a total of more than 1.5 million cars and caused warranty costs in the high three-digit million range in the current quarter. The delivery bans for 320,000 cars that have not yet been delivered to customers are leading to negative sales effects worldwide in the second half of the year.
Added to this is the continued subdued demand in China. BMW had previously been much more optimistic than its competitors. But “despite the government’s support measures, the reluctance to buy continues,” the company announced on Tuesday.
Sales and profit below previous year
The board therefore lowered its annual forecast: it no longer expects a slight increase in deliveries to customers, but a slight decrease compared to the previous year. The EBIT margin, i.e. the portion of sales that remains as operating profit, is likely to be only between 6 and 7 percent in the car segment – BMW had previously targeted 8 to 10 percent. Profit before tax is likely to be significantly lower than last year. Last year, BMW sold 2.55 million cars, achieved an EBIT margin of 9.8 percent in its core business and generated 17.1 billion euros in profit before tax.
Continental creates provisions
The supplier Continental announced that it manufactures the integrated braking system for BMW, which is being partially replaced. The function of an electronic component may be impaired. However, the braking performance is always above the legally required standards. “We have set aside provisions in the mid-double-digit million euro range and assume that this will be sufficient for the warranty claim,” Continental announced.
BMW shares fell by almost 8 percent in the afternoon following the profit warning, while shares in supplier Continental fell by 7 percent, and other automotive stocks also plummeted. BMW did not name the brake supplier, but announced that it would seek compensation. Between three and five percent of the components supplied were faulty, but all of them had to be checked.
The German car industry is currently in crisis. In addition to general location problems, there are the burdens of transformation, the sluggish business in the largest single market, China, and the shrinking demand for electric cars in Europe, where companies have invested heavily. The German industry leader VW is no longer ruling out factory closures and layoffs in Germany. Continental, one of the largest suppliers, wants to cut thousands of jobs, ZF is also cutting jobs on a large scale, and industry leader Bosch is also having to save money.
Source: Stern
