BMW AG recently announced that it is revising its key performance indicators for 2024, citing various challenges that the company is currently facing. One of the main factors affecting their outlook is sluggish demand in China, coupled with delivery stoppages and recalls related to the automaker’s integrated braking system (IBS), which is supplied by an external vendor.
These issues are expected to have a significant impact on BMW’s sales and profitability. The IBS-related recalls will affect over 1.5 million vehicles globally, leading to increased warranty costs in the third quarter. The company estimates that the associated costs will be in the “high three-digit million” euro range. Furthermore, the delivery stoppages for vehicles that have not yet reached customers will likely result in lower worldwide sales in the second half of 2024.
China’s muted demand is also affecting BMW’s sales volume in the country, despite government stimulus measures. The automaker acknowledges that consumer sentiment remains weak. As a result of these combined pressures, BMW AG has made revisions to 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. Additionally, the company has adjusted its earnings before interest and taxes (EBIT) margin forecast for the year, lowering it to a range of 6-7 percent from the previously anticipated 8-10 percent. The return on capital employed (ROCE) is also expected to be lower, with a revised estimate of 11-13 percent, down from 15-20 percent.
Despite these challenges, BMW is forecasting that its free cash flow in the automotive segment will exceed 4 billion euros for the year. The company anticipates that the third quarter will be more heavily impacted by these challenges than the fourth quarter, primarily due to the financial impact of the warranty costs and inventory build-up.
BMW’s motorcycles segment is also facing difficulties, with competitive pressure in key markets such as 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 range of 6-7 percent, a reduction from the previous estimate of 8-10 percent. The 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. The company plans to provide a more detailed report on these adjustments when it releases its quarterly results on November 6.
Overall, BMW’s revised outlook for 2024 reflects the challenges they are currently facing, particularly in China and with the IBS-related recalls. The adjustments made to their key performance indicators demonstrate the impact of these challenges on the company’s sales and profitability. However, BMW remains optimistic about its free cash flow in the automotive segment and is working to address the difficulties in its motorcycles segment. The upcoming quarterly report will provide further insight into the company’s performance and strategies moving forward.
