BMW will recall about 1.5m vehicles over problems with their brakes, wiping €4.3bn (£3.7bn) off the value of the German carmaker.
The company, which also makes Rolls-Royce and Mini, said the product recall will have a “negative worldwide sales effect in the second half of the year”.
Shares plunged by as much as 9.6pc as it said it would take a “high three-digit million” euro hit to its finances in the three months to September as a result.
It also cut its profit guidance, with margins this year expected to be between 6pc and 7pc, down from 8pc to 10pc previously.
The luxury vehicle brand has already been grappling with weakening demand from China, which has afflicted the German car industry.
It reported an 8.6pc fall in net profit during the second quarter to €2.7bn, with revenues down 0.7pc to just under €37bn.
It came as Volkswagen told the German metalworkers’ union IG Metall that it would scrap a range of labour agreements including a guarantee of jobs until 2029 at six German plants.
Volkswagen is cancelling the decades-old employment guarantees as part of a cost-cutting drive that has triggered a showdown with workers as Volkswagen struggles to compete against cheaper Asian rivals.
The move follows a threat that it could shut plants on German soil for the first time in its 87-year history, which sent shockwaves through the global autos sector and prompted high-level German government concern.
The head of the company’s works council has vowed fierce resistance against lay-offs and factory closures, blaming management for Volkswagen’s ills.
Volkswagen said that it needed “to reduce costs in Germany to a competitive level, allowing us to invest in new technologies and products independently. Considering the competition and the location in Germany, this is now crucial. We must act decisively and secure a successful future”.
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