BMW shares slide after profit margin cut over faulty brakes and weak China demand

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Shares in BMW slid more than 8 per cent on Tuesday after it revealed that 1.5mn of cars sold in the past two years could have faulty braking systems.

The Munich-based maker of premium cars cut its full-year earnings forecast and set aside a “high three-digit million amount” for expected warranty payments in the third quarter, as it warned that weak demand in China would push sales down further.

The company said cars produced between June 2022 and this August, including models such as the BMW X1, Mini Cooper and Rolls-Royce Spectre could be affected, adding that 3 to 5 per cent of the potentially affected cars were expected to have been installed with a brake support system that could malfunction.

The faulty brakes have been installed in BMW vehicles produced in China, the US, the UK, Germany, South Korea and France.

Continental on Tuesday said it had produced the faulty MK C2 brakes system, adding that the issue was an “electric component that might have an impaired functionality [which could] result in the brake systems using the built-in fallback level”.

The company, which is at present trying to spin off the division that made the faulty brakes system, said the brakes system would, even if malfunctioning, operate “significantly above the legally required standards”.

Continental added that it had developed software that would warn car owners if their vehicle was affected, which was now being made available to BMW customers. Its shares fell more than 9 per cent on the news.

BMW had already warned hundreds of thousands of car owners about the faulty system in April, but the component issue is now seen to be affecting 1.5mn cars.

Roughly 320,000 of the affected cars had not yet been shipped to customers, BMW said, meaning customers could expect month-long delays to planned deliveries.

The German group said its full-year operating margin was now expected to be between 6 per cent and 7 per cent, compared with its previous guidance of 8 per cent to 10 per cent.

The faulty brakes system was, however, not BMW’s only issue. The company said full-year deliveries would also slide slightly this year due to weak demand in the world’s largest car market, China.

“The one-off technical action and China market development is definitely challenging,” the company said in a presentation to analysts.

Outside of China, BMW said overall retail sales increased 4.4 per cent in the first eight months of the year. It added that electric vehicle sales continued to “grow significantly in August” compared with last year.

Analysts at Citi said BMW was “overexposed” to China, adding that as the market was “only getting tougher . . . it remains tough the see the positive catalyst for BMW”.