Sunday 06, August 2017 by William Mullally

Diesel Forum Berlin: German carmakers agree to software fixes for five million vehicles

Patrik Lang, Head Equity Research, Julius Baer

German carmakers reached an agreement with the authorities to implement software fixes on 5m diesel cars. The deal covers all Euro 5 and some Euro 6 cars with the objective of cutting nitrogen oxide (NOx) emissions by an average of 25 per cent-30 per cent. All costs related to the update (we estimate total costs will be around EUR100/car) will have to be borne by the carmakers themselves. According to the German car association (VDA), the agreement is designed to avoid driving bans in German cities. In our view, the outcome is positive for the German car industry, as more expensive hardware updates can now be avoided. However, in our view this agreement will hardly improve the credibility of diesel. Although we believe that the diesel engine is better than its reputation, we expect further gradual market share losses relative to gasoline vehicles.

The Diesel Forum agreement should support the German car industry in the short term, as the worst-case scenario has been avoided. In the longer term, we expect ongoing market share losses for diesel relative to gasoline vehicles.

 

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