Mercedes-Benz’s diesel cheat to rival Volkswagen

Think Volkswagen’s diesel emissions-cheating scandal was expensive? Mercedes-Benz’s parent company is staring down the barrel of an emissions mess that could cost it exactly the same as Volkswagen’s.

It has been forced to halt production and distribution of some of its diesel models and will struggle to meet ongoing emissions rules in other countries, including Australia.

While it denied it had a diesel-emissions scandal of its own since Volkswagen’s Dieselgate cheating scandal broke in September, 2015, Germany’s Transport Department thinks otherwise.

So much so that Daimler has set aside an astonishing €30.7 billion to cover potential losses related to its diesel scandal, including doubling its reserves for potential regulatory and liability costs to €4.9 billion.

Daimler did a terrific job of keeping out of the Dieselgate headlines, but Germany’s transport department (KBA) has already warned that it will declare Mercedes-Benz’s so-called thermal switching system illegal.

The KBA hasn’t slapped a fine on Daimler this time around yet, but it hit the company with an €870 million fine last year for failing to reduce diesel NOx emissions.

It has taken the situation so seriously that it formed a six-member committee to investigate its legal affairs “against the backdrop of the complexity of the emissions- and antitrust related proceedings," its annual report stated.

The big fine Daimler’s waiting for could not have come at a worse time for the embattled car maker, which has also set aside €2 billion for restructuring costs as it looks to slash 15,000 jobs within two years and has even greater costs in front of it as it electrifies its cars.

So far it has only the EQC as its lone modern-generation EV, though its smart brand (now 50 percent owned by China’s Geely) has production EVs as well.

In its annual report on Friday, Daimler announced that the KBA was about to declare that its cars were “equipped with impermissible defeat devices”.

“Defeat device” is a term used to cover any technology designed to cheat regulatory emissions limits.

It warned that its diesel models were under increasing scrutiny in Germany after the luxury brand was lambasted by the KBA for its thermal switches, which turned off emission controls when the ambient temperature was too low or too high.

The system relied on a legislation loophole that allowed for measures to protect the longevity of the emissions-cleaning technology, switching off below between six and eight degrees and above 26 degrees.

New Daimler CEO Ola Kallenius appears to have been left with a ticking timebomb by former boss Dr Dieter Zetsche and has so far been forced to revise earnings forecasts three times as new financial hurdles have been uncovered.

The luxury brand is considered one of the most under threat of missing Europe’s EU7 fleet average emissions targets this year.

Daimler’s 2019 average fleet emissions target was 137 grams of CO2, though that will be slashed to 103 grams this year and in 2021 as the EU seeks to pull Europe’s fleet average down to 95 grams.

Daimler itself has cautioned that it may not make the target number, with its customers not switching from combustion engines fast enough. Electric cars took up 2.8 percent of Daimler sales last year, but they’ll need to hit about 10 percent by the end of next year to avoid penalties.

Missing the target would be a painful exercise, with a fine of €95 for each gram over the limit, multiplied by every car sold in 2020 and 2021.

Under EU rules, it could face fines of between €1.5 billion and two billion if it misses the target.

Benz’s cars are typically large, powered by petrol or diesel engines, though it has added a wave of plug-in hybrids and plans more dedicated EVs this year.