In a recent announcement, BMW revealed that it has revised down its profit margin outlook for 2024, primarily due to sluggish demand in its crucial Chinese market and complications related to a braking system supplied by Continental. The news promptly sent shares of both BMW and Continental tumbling by around 9%, making them the top decliners on Germany's benchmark DAX index. This setback has also had a negative impact on European auto stocks as a whole.

BMW cited delivery delays stemming from the faulty braking system as the cause of a projected decline in sales during the second half of the year, affecting more than 1.5 million cars in total. Out of this figure, approximately 1.2 million vehicles have already been delivered to customers and can be remotely checked for faults via over-the-air software. However, the remaining 320,000 cars are temporarily unable to be handed over to customers. As a result of these issues, BMW expects to incur "a high three-digit million amount" in warranty costs during the third quarter.

Furthermore, BMW disclosed that it now anticipates a margin on earnings before interest and tax between 6% and 7% for 2024, in contrast to the previous guidance of 8% to 10%. Additionally, the company revised its delivery forecasts, with a slight decrease now expected for 2024 instead of the previously projected slight increase.

In response to the situation, Continental issued a separate statement mentioning that only a "small proportion" of the braking systems it supplies to BMW will need partial replacement due to a potentially impaired electronic component. The car supplier has set aside provisions in the mid double-digit million euro range, which it believes will be sufficient to cover warranty costs.

Aside from the braking system issues, BMW also highlighted the ongoing subdued demand in China as a factor impacting sales in the country. The luxury carmaker joins the group of automakers grappling with challenges in the world's second-largest economy, which is also the largest auto market globally. Despite government stimulus measures, consumer sentiment in China remains weak, according to BMW.

Overall, BMW's trimmed profit margin outlook reflects the obstacles faced by the company in its major Chinese market as well as hurdles posed by the braking system problems. The revised figures indicate that BMW is bracing for a tough road ahead in the coming years.