BMW AG announced an adjustment to its 2024 financial outlook, attributing the change to delivery stoppages and recalls associated with the automaker’s integrated braking system (IBS), supplied by an external vendor.
Those issues, coupled with underwhelming consumer sentiment in China, are expected to impact the company’s sales and profitability, the company said in a press release on Sept. 9.
The IBS-related recalls will affect more than 1.5 million vehicles globally, leading to increased warranty costs in the third quarter, the company said.
The associated costs are projected to be in the “high three-digit million” euro range. The delivery stoppages for vehicles not yet in customers’ hands will likely result in lower worldwide sales in the second half of 2024, the company said.
“In parallel to this effect, the ongoing muted demand in China is affecting sales volume,” BMW said in the release. “Despite stimulus measures from the government, consumer sentiment remains weak.”
As a result of these combined pressures, BMW AG has revised its key performance indicators for 2024.
Deliveries are now expected to show a “slight decrease” compared to the previous year, whereas earlier guidance had projected a slight increase.
The company also adjusted its earnings before interest and taxes (EBIT) margin forecast for the year, to a range of 6–7 percent, down from the previously anticipated 8–10 percent.
Further, the return on capital employed (ROCE) is now expected to be 11–13 percent, down from the previous estimate of 15–20 percent. Despite these headwinds, the company’s free cash flow in the automotive segment is forecasted to exceed 4 billion euro for the year.
BMW anticipates that the third quarter will be more heavily affected by these challenges than the fourth quarter, primarily due to the financial impact of the warranty costs and inventory build-up.
In its motorcycles segment, BMW also acknowledged difficulties, citing a “major impact on volume and price realization” due to competitive pressure across key markets, including China and the United States.
Deliveries in this segment are now expected to be flat compared to last year, with an EBIT margin in the 6–7 percent range, a reduction from the prior estimate of 8–10 percent.
Return on capital employed in the motorcycles segment is projected to be 14–16 percent, down from the previous range of 21–26 percent.
As a result of these factors, BMW expects a significant decrease in EBIT, revising its earlier prediction of a slight decrease.
BMW said it will provide a more detailed report on these adjustments when it releases its quarterly results on Nov. 6.
