BMW has issued a significant setback for investors, announcing a revision to their financial guidance due to a massive brake recall affecting over 1.5 million vehicles worldwide. The recall will result in "additional warranty costs in a high three-digit million amount" during the third quarter, which translates to a substantial hit well in excess of $550 million.
Furthermore, the automaker has revealed that stop sale orders associated with the recall will have a negative impact on global sales in the second half of the year. Compounding these challenges, BMW has also cited muted demand in China and weak consumer sentiment as contributing factors to their revised outlook.
As a result of these developments, BMW now anticipates a slight decrease in annual sales, reversing their previous forecast of a slight increase. The company has also lowered their earnings before interest and taxes (EBIT) forecast to a more conservative range of 6% to 7%.
The problems are not limited to the automotive division, as BMW Motorrad is facing an ongoing competitive situation in key markets like the United States and China. This competitive pressure is impacting both volume and price realization, leading to a projected flat sales performance for the year.
In the most significant announcement, BMW revealed that group earnings before tax will "decrease significantly." The company had already anticipated a slight decrease, but the recent developments have significantly worsened their financial outlook. The news sent BMW stock plummeting 11.43% on Tuesday, closing at $77.10.