German automaker BMW said Tuesday it was recalling about 1.5 million vehicles due to problems with their brakes, prompting the company to cut its outlook for the year and lower the guidance for profitability. The announcement also sent its shares and shares of other top European automakers tumbling.
The recall will have a "negative worldwide sales effect in the second half of the year," said the group, which also includes the Rolls-Royce and Mini brands.
The financial impact in the three months to the end of September will be in the "high three-digit million" euro range, it said.
It was further bad news for BMW, which has been hit by weakening demand in China, and for the broader German auto sector after Volkswagen said last week it was mulling the unprecedented step of closing factories in Germany.
The carmaker said it expects its margin of earnings before interest and taxes (EBIT) to be between 6% and 7% for 2024, having previously guided for a figure between 8% and 10%.
The company's shares slipped 8% at 11:28 a.m. GMT following the announcement, dragging Mercedes-Benz, Volkswagen, Stellantis, Porsche Holding and Renault down between 4% and 5%.
BMW said the downward revision was triggered partly by headwinds in its core automotive segment resulting from delivery stops and technical actions linked to the Integrated Braking System (IBS), which is provided by Continental.
In a statement, Continental said that only a "small proportion" of the braking systems it produces and supplies to BMW will be partially replaced because of an electronic component that may be impaired. Its shares were down 6%.
Munich-headquartered BMW also flagged ongoing muted demand in China affecting sales in the country, joining the group of automakers facing difficulties in the world's second-biggest economy. As well as the impact of the recall, "the ongoing muted demand in China is affecting sales volumes. Despite stimulus measures from the government, consumer sentiment remains weak," BMW said in a statement.
The company also forecasts a slight decrease in deliveries, it said, without providing a specific figure, after having previously expected an increase.
In 2023 deliveries of BMW, Rolls-Royce and Mini vehicles stood at 2.56 million.
Last month BMW also recalled 1.4 million vehicles in China due to faulty airbags, the country's market regulator announced.
It reported a drop in net profit in the second quarter, due to the impact of poorer business in China and higher manufacturing costs.
Net profit at the group declined by 8.6% to 2.7 billion euros ($2.9 billion) between April and June, on the back of revenues down 0.7% to just under 37 billion euros.