February 19, 2018 / 11:25 AM / 7 months ago

Daimler shares fall after report about software device in Mercedes cars

FRANKFURT (Reuters) - Daimler (DAIGn.DE) shares fell 2 percent in early trade on Monday following a media report saying the maker of Mercedes-Benz cars had used software engine management systems to pass stringent U.S. emissions tests.

FILE PHOTO - Daimler AG sign is pictured at the IAA truck show in Hanover, Germany, September 22, 2016. REUTERS/Fabian Bimmer/File Photo

U.S. investigators probing Mercedes-Benz found that its cars were equipped with software which may have helped them to pass diesel emissions tests, German weekly Bild am Sonntag reported citing confidential documents.

A Daimler spokesman said the company was cooperating fully with U.S. authorities and had agreed to strict confidentiality with the U.S. Department of Justice.

“The authorities know the documents and no complaint has been filed,” the spokesman said. “The documents available to Bild have obviously selectively been released in order to harm Daimler and its 290,000 employees.”

Daimler shares were down 2.1 percent to 70.98 euros at 1045 GMT while Germany's blue-chip DAX .GDAXI was up 0.03 percent.

Rival Volkswagen (VOWG_p.DE) was forced to pay billions of dollars in fines after it was caught in 2015 using software to detect when a vehicle was undergoing an exhaust test, manipulating emissions to disguise illegal levels of pollution.

Analysts said Daimler’s regulatory problems may not be of the same magnitude as those seen by Volkswagen and Fiat Chrysler (FCHA.MI).

“Unlike Fiat Chrysler, the U.S. Environmental Protection Agency (EPA) has not chosen to issue a notice of violation against the company,” Evercore ISI analyst Arndt Ellinghorst said in a note on Monday.

“As a result, at this point, to the extent there has been any wrongdoing, the penalties may be more weighted towards remedy than fines,” Ellinghorst said.

The EPA in February 2016 requested information from Mercedes-Benz to explain emissions levels in some of its diesel cars.

Daimler said in its quarterly earnings report that it faced ongoing investigations by U.S. and German authorities into excess diesel emissions which could lead to significant penalties and recalls.

Software-based engine management systems are illegal if they are not declared to U.S. regulators and if they are designed to evade anti-pollution tests.

In Europe, carmakers have, however, legally made use of a “thermal window”, a temperature threshold which allows carmakers to throttle back emissions management systems in order to protect the engine from condensation or other damage.

Germany’s Transport Ministry last week said it was reviewing whether to initiate a formal hearing on Daimler to investigate the alleged use of an illegal defeat device on Mercedes-Benz Vito vans.

German prosecutors searched Daimler premises in May 2017 as part of an ongoing fraud probe related to false advertising and the possible manipulation of exhaust-gas after-treatment in diesel cars.

Stuttgart prosecutors said on Monday that two Daimler employees were being investigated as part of the probe.

Carmakers are bracing for a German court ruling on Thursday on whether German cities can ban heavily polluting cars, potentially wiping hundreds of millions of euros off the value of diesel cars.

Reporting by Edward Taylor; editing by Georgina Prodhan and Jason Neely

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