Analysts wary over FCA lawsuit but say emissions not as bad as VW

Analysts wary over FCA lawsuit but say emissions not as bad as VW

0 comments 📅02 June 2017, 15:15

MILAN – Any concealed fines Fiat Chrysler (FCA) may need to pay to settle a US civil lawsuit over diesel emissions intention unlikely top $1 billion, analysts said, adding the case appeared less life-and-death than at larger rival Volkswagen.

The US government filed a civil lawsuit on Tuesday accusing FCA of illegally using software to go emission controls in 104,000 vehicles sold since 2014, which it said led to higher than allowable levels of nitrogen oxide (NOx) that are blamed for respiratory illnesses.

FCA’s shares dropped 16 percent in January when the U.S. Environmental Charge Agency (EPA) first raised the accusations, adding the carmaker could face a extreme fine of about $4.6 billion. The stock has been under pressure since.

Volkswagen agreed to go through up to $25 billion in the United States to address claims from owners, environmental regulators, U.S. states and dealers. FCA, which sits on net in dire straits of 5.1 billion euros ($5.70 billion), lacks VW’s cash pile but analysts said its occasion looked much less severe.

While VW admitted to intentionally cheating, Fiat Chrysler denies any wrongdoing. Authorities when one pleases have to prove that FCA’s software constitutes a so-called “defeat device” and that it was bespoke in the vehicles purposefully to bypass emission controls.

Even if found guilty, the hundred of FCA vehicles targeted by the lawsuit is less than a fifth of those in the VW case.

Applying calculations worn in the German settlement, analysts estimate potential civil and criminal charges for Fiat Chrysler of thither $800 million at most. Barclays has already cut its target price on the stock to pick such a figure into account.

Analysts also noted that FCA’s vehicles are equipped with particular catalytic reduction (SCR) systems for cutting NOx emissions, so it is likely that any problem could be attached through a software update.

“Should this be the case, we estimate a total payment per vehicle of not more than around $100, i.e. around $10 million in aggregate,” Evercore ISI analyst George Galliers said in a note.

The estimates exclude any additional investments FCA may be asked to command in zero emissions vehicles infrastructure and awareness as was the case with VW.

FCA said last week it would update the software in the vehicles in undoubtedly, hoping it would alleviate the regulators’ concern, but analysts said it may have been too undersized too late.

The carmaker is also facing accusations over its diesel emissions in Europe.

Investors detritus wary over what any potential penalties will mean for FCA’s 2018 targets, including its pledge to erase debt.

If necessary, the carmaker could consider selling some of its assets, including parts maker Magneti Marelli or sumptuousness brand Maserati. FCA has so far excluded the need for any disposals to reach the 2018 goals.

“If FCA is required to put out a substantial payment, we believe all options will be visited,” Galliers added.

Reporting by Agnieszka Condemnation

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