Daimler braces for higher Mercedes diesel costs in Germany

[Mark-x]

aimler warned of a further crackdown on Mercedes-Benz diesel vehicles in Germany and boosted provisions for legal and regulatory costs that already crimped profit last year.

The country's motor industry watchdog, KBA, is likely to rule that other vehicles made by the luxury brand were also "equipped with impermissible defeat devices," Daimler said Friday in its annual report, referring to banned software designed to bypass emissions tests.

 

Daimler has temporarily halted delivery and registration of some models, according to the report. It boosted total provisions to 30.7 billion euros ($33.2 billion) from 23 billion euros, with potential liability and regulatory costs more than doubling to 4.9 billion euros.Daimler also said complying with stricter emissions rules in some countries will be difficult.

 

The automaker's move indicates trouble ahead for its diesel cars.Daimler took a massive earnings hit in 2019 and slashed its payout to investors to the lowest level since the financial crisis, blaming an 870 million euro fine by German prosecutors and costs related to reducing diesel-car emissions. The penalty coincided with record spending to boost its electric-car lineup and expand software operations. Daimler is also putting aside 2 billion euros for restructuring costs.

 

CEO Ola Kallenius has acknowledged in recent months that meeting Europe's tougher emission targets will be a challenge in the next two years because consumers may not move away from choosing combustion engines fast enough.

Under the bloc's rules, automakers face penalties if the average of the total passenger vehicles they sell exceeds a level of CO2 emissions.

 

Mercedes, which makes large gasoline and diesel models in addition to battery-run models, plans to make use of so-called super credit incentives on electric and plug-in hybrid models to lower its average.

Daimler's supervisory board has created a six-member special committee to focus on legal affairs "against the backdrop of the complexity of the emissions- and antitrust related proceedings," it said in the report.

The automaker could face a total of more than 1.5 billion euros in fines in 2020 and 2021 for missing European CO2 limits, according to BloombergNEF estimates.

To avoid such penalties, electric vehicles sales must account for about 10 percent of total deliveries in the region by 2021, compared with about 2.8 percent last year.