'Brake Recall' BMW Lowers Outlook, European Auto Stocks Plunge

BMW 11.15%↓... Continental 10.51%↓
Volkswagen Emergency Management Concerns Continue... 3.38%↓

Germany's leading automobile manufacturer BMW lowered its operating profit margin forecast due to brake system issues, causing European auto stocks to fluctuate.

On the 10th (local time), BMW announced that due to problems with the Integrated Brake System (IBS) supplied by Continental, its operating profit (EBIT) margin forecast for this year has been lowered from the previous 8-10% to 6-7%, and its return on equity (ROE) from 15-20% to 11-13%.

[Image source=AP Yonhap News]

BMW stated that it will incur additional costs due to delivery suspensions and recalls, and that the resulting delivery delays and warranty costs amounting to millions of dollars have led to a downward revision of this year's earnings forecast. More than 1.5 million vehicles have been affected by the IBS issue, of which 1.2 million have already been delivered to customers.

The company also noted that weak demand in the Chinese market negatively impacted sales.

Following this news, BMW's stock price plunged 11.15% and Continental, the IBS supplier, dropped 10.51% on the Frankfurt Stock Exchange in Germany.

Tom Narayan, an analyst at RBC, said BMW's announcement could be a sign of more guidance downgrades across the industry in the future.

Concerns over the automotive industry were further heightened as Germany's largest automaker Volkswagen entered an emergency management system and notified unions of the termination of a job security agreement, prolonging conflicts. Volkswagen officially informed the metalworkers' union IG Metall, which represents its employees, of the termination of the job security agreement that had been in place since 1994. The original agreement was valid until 2029.

If labor and management fail to reach a new agreement by June next year, Volkswagen will be able to lay off employees for business reasons starting from July next year.

Earlier on the 2nd, Volkswagen announced it would raise its cost-cutting target by an additional 4 to 5 billion euros (approximately 5.923 to 7.404 trillion KRW) from the previous 10 billion euros (about 14.8076 trillion KRW), signaling factory closures and layoffs in Germany.

Volkswagen's stock price closed down 3.38% that day.

The Stoxx Europe 600 index closed down 0.54% compared to the previous day. However, the Stoxx Europe 600 Automobiles & Parts sector fell 3.85% compared to the previous day.

Bloomberg reported, "Automakers have had a tough year due to overall weak demand, especially in the key market of China and declining electric vehicle sales," adding, "Trade disputes between China and the European Union (EU) and stricter EU vehicle emissions regulations in 2025 could result in billions of dollars in fines, increasing concerns."