Daimler Vows to Fight for Diesel's Survival Amid Disruption

  • CEO Zetsche declines to comment on auto cartel ‘speculation’
  • Cloud of scandal overshadows earnings surge at Mercedes

GAM's Howard Says Move to Electric Cars Inevitable

Daimler AG is conducting a thorough investigation into allegations of diesel cheating as the German automaker seeks to burnish the technology’s battered reputation amid an onslaught of negative news for an industry reeling from scandals.

The maker of Mercedes-Benz cars is keen to shore up diesel, which powers many of its lucrative sport utility vehicles and big sedans as well as its trucks, vans and buses. The Stuttgart, Germany-based manufacturer is counting on diesel while it invests in lowering the price and increasing the range of battery-powered cars to meet increasingly tough environmental regulations. 

An EU antitrust fine "could be so big that it absolutely hammers earnings," GAM’s Julian Howard tells Bloomberg TV.

Source: Bloomberg

“Diesel is worth fighting for,” Chief Executive Officer Dieter Zetsche said Wednesday. Still, in his first public comments since allegations of decades-long collusion with other German carmakers surfaced last week, he largely steered clear of the topic beyond bemoaning the string of bad news hitting the industry.

“The car industry is currently causing headlines, and they’re not good ones,” said Zetsche on a conference call with reporters. “I know a lot of people want more clarity now, but we can’t comment on speculation.”

U.K. Ban

The possible antitrust violations, which emerged from a report in Der Spiegel on Friday, opened another set of challenges, which also include the threat of diesel driving bans, industrywide recalls rooted in Volkswagen AG’s emissions-cheating scandal and heavy investment burdens to develop self-driving electric vehicles. The U.K. is adding to the urgency by moving to ban sales of diesel and gasoline cars by 2040 to combat air pollution, joining a similar plan in France.

Carmakers’ fight for diesel goes beyond holding on to a tried-and-tested technology. Until consumers finally buy electric vehicles, manufacturers need diesel as it generates about a fifth less greenhouse gases than comparable gasoline engines. Otherwise, the companies won’t meet Europe’s tightening emissions standards, and face paying fines as of the start of the next decade.

Dieter Zetsche

Photographer: David Paul Morris/Bloomberg

“We’re convinced, like the rest of the carmaking industry, that we’re headed toward electric mobility,” Zetsche said. “Until that happens, further reductions in CO2 we’ll be achieved through combustion engines, and here the diesel will play a significant role.”

Daimler said a week ago that it will recall more than 3 million diesel autos to upgrade exhaust-system software and will book the 220 million euros ($256 million) in costs in the third quarter. The cloud overshadowed the boon from buyers flocking to Mercedes’s new suite of sporty models. The group’s second-quarter profit rose 15 percent to 3.75 billion euros, the company said Wednesday in a statement.

Daimler shares declined 0.1 percent to 60.99 euros as of 11:03 a.m. in Frankfurt. The stock has dropped 14 percent this year, valuing the company at 65.3 billion euros.

Continued Cooperation

The profit gain came even with a 19 percent jump in first-half research and development spending as the manufacturer gears up to introduce a line of battery-powered autos. Daimler said in March that it will release 10 new electric vehicles by 2022, three years earlier than a previous target, and it’s working to adapt an engine plant to produce batteries.

Carmakers’ shares dropped after Spiegel magazine reported that Daimler and Volkswagen informed authorities last year of discussions they’d had since the 1990s that also included BMW AG. Over the weekend, the European Union’s antitrust overseer confirmed it’s studying possible collusion among auto producers, together with Germany’s regulator.

The allegations have appeared to strain relations in the auto industry, as BMW on Sunday backed its diesel emissions technology and pointed the finger at rivals for not doing enough. Zetsche said he hasn’t conferred with his BMW counterpart, Harald Krueger, in the past seven days, but that he expects existing cooperation pacts with peers to continue.

“I’ve not spoken to him and I’ve not received any information that on other levels there have been any signals of this speculative nature,” Zetsche said, referring to a report in German daily Sueddeutsche Zeitung that BMW has suspended talks on new projects.

Since about 2008, Daimler and its Munich-based rival have purchased significant volumes of components like windscreen wipers and tires together, totaling some 2 billion euros in annual orders. Combining procurement helps lower prices and gain efficiency, and BMW had planned to expand the partnership. BMW declined to comment on the newspaper report.

Daimler, BMW, VW and Ford Motor Co. are also working together to establish a fast-charging network for electric cars along major European highways by 2020. Audi, BMW and Daimler bought digital-mapping company HERE in 2015 for 2.5 billion euros, and have run it jointly since then.

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