(News Bulletin 247) – The German premium brand has lowered its forecasts for 2024 following a problem with a brake system that will affect its deliveries. All European auto groups have fallen on the stock market following this announcement.

Another blow for a European manufacturer. The German group BMW announced on Tuesday that problems with a braking system supplied by an equipment manufacturer would affect deliveries of its vehicles and would lead to “technical actions”.

BMW said the “technical actions” would affect a total of 1.5 million vehicles and would generate additional costs of at least 100 million euros in the third quarter.

The supplier in question is none other than Germany’s Continental. In a statement quoted by Reuters, Continental said that only a “small proportion” of the braking systems supplied to BMW would be partially replaced due to an electronic component suspected of being defective.

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BMW unscrews

In addition, BMW said demand remained “sluggish” in China, affecting volumes, and consumer confidence remained “weak.” The group more broadly explained that ongoing competition in its key markets was impacting volumes and pricing.

In light of all these elements, the German group has lowered several targets for 2024. BMW anticipates a slight decrease in deliveries, whereas it had previously predicted a “slight increase”, and is counting on an operating margin of between 6% and 7%, compared to 8% to 10% previously. The Bavarian company is also targeting a return on capital employed of between 11% and 13%, compared to 15% to 20% previously.

On the Frankfurt Stock Exchange, BMW shares fell by 8.5% in the middle of the afternoon following this announcement, while Continental lost almost the same amount (8.7%).

A sector on the rocks

But beyond these two groups, the entire European automotive sector is under pressure. Mercedes-Benz is down 4%, Volkswagen is down 2.4%. In Paris, Renault is down 4.4% and Stellantis is down 2.9%. Equipment manufacturers Valeo and Forvia are down 3.6% and 3.2% respectively. All these groups have clearly accelerated their decline after BMW’s announcement.

“The recall in question at BMW, which involves Continental’s braking system, does not concern any other manufacturer at this stage. Other groups use this braking system but with different specifications and have not reported any problems,” underlines Adrien Brasey, analyst at the independent research firm AlphaValue.

“However, BMW’s comment on China could create a greater impact and penalize other groups. Above all, this announcement adds to a long list of bad news for the sector and could push some investors to completely exit the automobile sector while waiting for the bearish cycle to end,” he continues.

BMW’s lowered forecast comes after another particularly tough half-year results season for the sector and gloomy announcements from Volkswagen. Europe’s largest automaker revealed last week that it was considering a drastic austerity drive with mass layoffs and plant closures in Germany. A symbol for a country where the auto industry is a source of national pride.