BMW stock falls 11% due to brake system failure, worsening European car crisis

He The bad times of the European motor industry are not being stopped. German premium carmaker BMW on Tuesday cut its profit forecasts due to a problem with a brake system supplied by German tyre and component maker Continental. The fault, which affects 1.5 million vehicles that will be recalled, will mean that BMW is far from the €17.1 billion profit it had initially forecast for this year and its margin will remain at 6% (last year it was 9.8%). The announcement sent the manufacturer’s shares tumbling 11.15% at the close of trading on the German stock exchange, where they closed the day at below 69 euros. BMW has insisted that the cars are safe and that it has previously issued recalls for the brake problem, but it has never indicated a possible financial impact.

Although the company has not put a figure on the cost, analysts at Morgan Stanley have cut earnings forecasts by 25%, according to Bloomberg. The tyre manufacturer Continental, meanwhile, lost 10.2% of its value on the stock market. According to the company, the problem is with an electronic component, and BMW has said it is considering whether material repairs will be necessary or whether the problem can be solved by means of computer updates.

However, the market reaction points to a crisis that goes beyond a temporary problem, as the news comes just a week after Volkswagen announced unprecedented measures to cut costs, including the possibility of closing two plants in Germany. In the face of this new setback, the European sector is falling sharply: Renault fell 3.10% on the stock market, while Mercedes-Benz and Porsche Automobil Holding, owner of 53.3% of the Volkswagen group (the Porsche brand is listed separately), fell around 4.8% and 2.93% respectively. Something similar happened to the French component manufacturer Valeo, which recorded a loss of 4.35% at the close of trading. The automobile sector is one of the worst sectors of the year within the Euro Stoxx, with a fall of 10%.

The new problem is punishing BMW, whose electric models were managing to improve the weak sales performance of its German rivals. But the market is slowing down for everyone: the sluggish sales in China also contributed to the change in forecasts of the German manufacturer, as did Volkswagen. The market leader in Germany explained last week that competition from Chinese brands that have landed in Europe with low prices, especially in the field of electric vehicles, and the stagnation of sales of electric cars have forced it to cut costs.

The problem for the Volkswagen Group lies above all in the brand that gives its name to the group, which is the one that brings in the most sales for the company (more than 1.5 million units between January and June), but its profit margin has fallen dramatically from an already low 3.8% to 2.3%. The company says that half a million sales have been lost in recent years and that this is equivalent to two factories. The most tense moment was last week at the group’s headquarters in Wolfsburg, where 25,000 workers demonstrated and booed the management of the German manufacturer, which is falling behind its competitors. A clear symptom is its inability to offer an affordable electric car, for example, a project for which it considered an alliance with Renault, but which it finally gave up on.

To get out of the situation, the German carmaker made a change of teams on Monday and appointed David Powell, until now in charge of finances for Seat and Cupra, as the new financial director of the Volkswagen brand, after the splendid results of Seat, which recorded the highest profits in its history in the first half of the year.[Powels] “The focus will be on implementing competitive and cost-optimised structures. This also means making full use of synergies within the core brand group,” said Thomas Schäfer, Head of the Volkswagen brand and the core brand group (which includes Volkswagen itself, the van division, Skoda, Seat and Cupra).