DAX Slides After German Top Court Rules Cities Can Ban Diesel Cars

The DAX legged lower, led by sliding shares of Volkswagen, BMW and Daimler after Germany’s top administrative court ruled German cities have the right to ban diesel cars, a move which could have far-reaching consequences for the 12 million vehicles in Europe’s largest auto market, the FT reported.

The national court in Leipzig upheld earlier decisions from lower courts in Stuttgart and Düsseldorf, which had allowed the bans. Those rulings had been appealed amid legal uncertainty over whether municipalities have the power to make such restrictions. Prior to the ruling, Bloomberg predicted that if the court backs the city-level diesel bans, it would likely jump-start a wave of new policies targeting the fuel

The case followed a debate triggered by Volkswagen’s diesel emissions scandal in 2015, in which the carmaker admitted to installing cheat software to trick lab tests of emissions. As a result of that admission, a wider array of older diesel cars came under scrutiny, leading some politicians at the local level to decide that older, less clean vehicles should be barred from their cities.

The case in Leipzig was brought by environmental lawyers representing ClientEarth and Deutsche Umwelthilfe, or DUH, who together have filed 10 separate cases in the country. ClientEarth lawyer Ugo Taddei called the decision “a tremendous result for people’s health in Germany” which may also have an impact abroad.

“This ruling gives long-awaited legal clarity that diesel restrictions are legally permissible and will unavoidably start a domino effect across the country, with implications for our other legal cases,” he said just after the decision. “Putting traffic restrictions on the most polluting vehicles is the quickest and most effective way to protect people from harmful air pollution.”

Last November, after car executives and politicians held a “diesel summit” to discuss the problem of older vehicles, German governments at the city, state and national level agreed to invest €1bn on environmental remediation efforts as part of a deal to avoid bans on older diesel cars.

At the time, the outcome was deemed a failure by Jürgen Resch, head of the DUH, who accused Chancellor Angela Merkel of “submitting” to the car industry, Germany's largest. DUH said Germany experiences 13,000 premature deaths each year from nitrogen dioxide pollution. “Our aim is to prevent them,” said Mr Resch.

Following the ruling, VW preferred shares declined as much as 2%, BMW and Daimler reverse gains to drop as much as 1% and 0.7%, respectively. French carmaker Renault also fell, trading down 0.2% as of 12:22pm; Fiat -0.3%, Porsche -1.4%; Peugeot up 0.4%; Stoxx 600 Automobiles & Parts Index -0.6%

As the FT adds, a key risk for the carmakers is that bans in various cities could force them to retrofit expensive hardware solutions to reduce emissions of nitrogen dioxide in millions of cars. So far, Volkswagen, BMW and Daimler have only agreed to pay for less expensive software upgrades.

Arndt Ellinghorst, analyst at Evercore ISI, warned before the ruling that a decision in favour of diesel bans could “open Pandora’s Box” by forcing carmakers to invest billions of euros in older technology just as they try to focus their resources into new electric, autonomous and digital technologies.

That would be costly. In one government-sponsored analysis by the Technical University in Munich, the cost of retrofits designed to reduce NOx emissions by 90 per cent would be about €1,300 per vehicle. A separate calculation by Volkswagen put the cost at €2,500 per case, he noted.

Altogether, the total cost to fixing around 5.8m older diesel cars in Germany would cost between €7.6bn and €14.5bn. “Diesel might get its final kiss of death from a court ruling,” Ellinghorst said.