Fiat Chrysler Automobiles (FCA) shares climbed on Friday as investors played down the potential impact of the US Environmental Protection Agency’s (EPA) accusations that the company has used technology to cheat on emissions tests.
The shares took a tumble by 16 percent on Thursday after the EPA accused the carmaker of illegally using hidden software to allow excess diesel emissions to go undetected, suggesting a maximum fine of approximately $4.6 billion.
However, Fiat’s Milan-listed rose more than 7 percent in early trade and stood 3.53 percent higher at 9.09 euros.
Recently, rival company Volkswagen admitted to cheating diesel emissions tests and agreed to spend up to $22 billion in the United States to address claims from owners, environmental regulators, US states and dealers.
On Thursday, Chief Executive Sergio Marchionne categorically rejected the allegations and said there was no wrongdoing and the company never attempted to create software to cheat emissions rules.
According to the EPA, FCA failed to disclose engine management software in 104,000 US vehicles, leading to an increase in emissions of nitrogen oxides (NOx). However, the authority has stopped short of labeling them “defeat devices” as in Volkswagen’s case.
Analysts drew best and worst case scenarios, estimating potential fines ranging from several hundred million dollars to $4 billion. But they said the likelihood of hefty fines were very low.
“Our base case is that the current violation notice is settled as a reporting violation of $140 million, a very manageable figure for FCA,” said Stuart Pearson, an analyst at Exane BNP Paribas.
“However, until the issue is settled, emissions uncertainty is likely to remain a significant overhang to the shares and break the stock’s impressive recovery since Trump’s election.” He added.
Analysts have also noted that FCA’s vehicles are equipped with selective catalytic reduction (SCR) systems, so could likely be fixed at a relatively immaterial cost.
Before this week’s fall, FCA’s shares rose by around 70 percent since Donald Trump’s election, on expectations of less stringent emissions policies under the next US administration.
FCA’s case will soon be handed over to the new Trump administration, which the market expects to be more lenient than the previous one.
The stock was also supported by Marchionne’s promise to deliver on his ambitious 2018 targets, including wiping out the company’s debt. On Friday, Italian media quoted Marchionne as saying that the EPA inquiry would not have a negative impact on those goals.