Diagnosis
The mode selector ring's internal lugs are not aligning with the hammer mechanism cam. Dirt or a lack of grease is the cause.
How to Fix It
Remove the battery. Rotate the chuck by hand while firmly turning the mode selector. This helps the internal parts align. Cycle through all modes several times. Apply a small amount of dry lubricant (like Teflon spray) around the base of the selector ring.
If That Didn't Work
The hammer mechanism thrust bearing or the selector ring itself may be broken. This requires gearcase disassembly to inspect and replace parts.
Heads Up
Never force the selector ring. You will shear the plastic lugs off the ring, requiring full replacement.