BMW Stock Drops: Braking Issues and China Market Struggles

BMW has lowered its forecast for revenue, profit, and margins for the current year. The reason for this is issues with a braking system and the challenging market environment in China. The stock dropped by double digits.

The Munich-based car manufacturer BMW revised its projections for the current fiscal year on Tuesday. It now expects a slight decline in deliveries compared to the previous year, whereas the company had previously forecast a slight increase. The management had predicted an EBIT margin of 8 to 10%, but now expects 6 to 7%. The group’s pre-tax earnings are expected to drop significantly, whereas only a slight decline was initially anticipated.

China problems and warranty costs

BMW cited additional burdens in the automotive segment, resulting from delivery stoppages and recalls related to an integrated braking system supplied by a third party. The delivery stoppages for vehicles not yet in customer hands are leading to negative sales effects worldwide in the second half of the year. According to the company, more than 1.5 million vehicles are affected by the braking issues, which will result in additional warranty costs in the high hundreds of millions in the third quarter.

Additionally, the continued weak demand in China is affecting sales volumes there. Despite government support measures, consumer reluctance to buy persists.

BMW stock plummets

The stock market reacted with shock to the announcement. During the trading day, BMW’s share price dropped by 11.15%. Over the year, the stock has lost around 14% of its value. BMW is not the only automaker facing challenges: Volkswagen is also struggling with a crisis.

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