We will be using the M62 TU as example here but the are a lot of different combinations of Vanos systems. The M62 TU just adjust the intake cam, some have double Vanos that adjust the intake and exhaust cams.

The term Vanos comes from a German words (varible nockenwellen steuerung) that translates to Variable Camshaft Control. The Vanos system provides stepless adjustment of the cam or cams.
The cam continuously adjust to best suit the engine this reduces the emissions improves fuel economy and improves performance.
How the Vanos works.

All the BMW Vanos work the same way. They operate through the computer (control module) / oil (or hydraulics) and mechanical controls.

There are two types of Vanos systems. One is a simple on and off on the M50 TU and M52 engines.
The other is a variable position system and it is on the M52 TU and M62 TU engines.

The computer or control module as it should be called is in control of everything. What the control module takes in to account is the engine speed, air going in the engine (intake air flow), engine temperature and camshaft position.


Understanding BMW Vanos

How the BMW vanos timing works

If you have a M62 TU engine both intake camshafts are adjusted simultaneously. They can advance  or retard the timing to a maximum of 20 degrees. This gives a total of 40 degrees adjustment.

Understand a non adjustable timing.

If you ever worked on pre-computer cars where you had a distributor that had to be set for timing you would know that, if you set the timing a advanced profile you would get a higher performing power curve. But in the advanced position it had a unstable idle. It would have more power but the trade off was bad idle and it would lose fuel efficiency.
On the other hand, if it was set in the retarded position it would have a smooth and stable idle and gain fuel efficiency. But it would lose performance. This is why non variable engines are set some where in the middle to get the best of performance and fuel efficiency possible
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# 1 is the helical gear
# 9 control solenoid, this go's to the control module and controls the oil flow.
# 2 is the oil distribution flange.
You can see here how the BMW control solenoid works. The oil is sent through oil distribution flange to the Vanos transmission. The primary and secondary chain sprockets work with the Vanos transmission.
The timing adjustment of the camshaft happens inside the Vanos transmission.
The Hydraulic controls oil and is directed through the components of the Vanos system and in turn adjust the camshaft. This is the mechanical control part. This is one reason to change your oil and use the correct oil. In BMW's the oil dose a lot more then just lubricate the engine.

The mechanical control uses a solenoid valve to send the oil flow and either advance or retard the timing. The oil exits into a sealed chamber, in a engine startup or low RPM's it is is default position. The oil is sent to the rear of the helical gear and keeps the valve timing in the retarded position.
When the oil is directed to the front of the helical gear the timing is advanced.
Watch a video of how to replace BMW timing chain guides. It will help understand how the timing works.
This is how the camshaft looks. Each camshaft has two oil ports and three seal rings. The ports send pressurized oil from the distribution flange to the Vanos transmission. Then it will either advance or retard the timing.
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