German carmaker BMW is set to recall 1.5 million vehicles due to a braking problem, resulting in a cost of almost €1 billion (£0.84 billion). The company announced that the fault in the braking system is more widespread than initially anticipated, causing its annual earnings to be significantly lower than expected. As a result, BMW's share price plummeted to a four-year low, experiencing an 11% drop on Tuesday.

The braking issue, although not deemed a safety concern by BMW, will still incur a substantial expense in relation to warranties, estimated to be a "high three-digit million amount." Additionally, weak demand in China is expected to impact profits, leading to a projected margin of around 6% compared to the anticipated 10%.

The news marks another blow to Germany's automotive industry, which is already grappling with the effects of Volkswagen's announcement of potential factory closures – an unprecedented move for the company. While BMW clarifies that the brakes in the affected vehicles continue to function, the fault in the electronic braking support system could impact the required pressure on the brake pedal to bring the car to a stop.

The electronic brake support system, manufactured by Continental, is utilized in several BMW models produced since June 2022, including popular SUVs like the BMW X1, X2, and X5, as well as the Mini Cooper, Countryman, and the luxury Rolls-Royce Spectre. Only a small fraction of the potentially affected vehicles are believed to have the malfunction, with manufacturing locations spanning Germany, the UK, France, the US, China, and South Korea.

Continental, which also specializes in tires, stated that only a "small proportion" of the braking systems it supplies to BMW would require partial replacement due to an electronic component with potential impaired functionality. This financial provision for warranties is estimated to be in the "mid-double-digit million" range, resulting in a 9% drop in Continental's share price.

BMW assured that 1.2 million of the affected vehicles have already been delivered and can be remotely checked for faults through wireless software updates. However, approximately 320,000 new cars will experience delivery delays, impacting sales in the second half of the year. Back in February, it was estimated that around 14,000 UK-registered vehicles were affected by the braking issue, a concerning figure considering that nearly 160,000 new BMWs and Minis were sold in the UK in the previous year.

As BMW navigates this large-scale recall and grapples with the financial repercussions, the automotive industry in Germany faces renewed challenges in an already uncertain market. The company is focused on rectifying the braking problem swiftly and ensuring that customer safety remains a top priority.