Litigation Risk for Automotive Makers

Automotive industry:

Most challenging and direct financial impact comes from litigation risk. There are many high value class-action lawsuits, with the VW ‘diesel-gate’ scandal setting a clear precedent for OEM liability relating to GHG emissions. The level of balance sheet provisions and risk disclosure increases year-on-year, particularly in relation to ICE vehicles. But even for electric vehicles, in China, USA and Europe there was already well-established legislation since 2017-19 making OEMs ultimately responsible for end of life, so the risk of not being in control of the vehicles and batteries once sold only increases the litigation risk.

Business opportunities include the cultural acceptance and shift to electric vehicles – with first mover advantage for OEMs who invest in efficient electric drivetrains and compelling product propositions, currently aided in many countries by fiscal incentives for electric vehicles and punitive measures on non-electric vehicles.

Tipping points could include banks significantly increasing the cost of financing non-electric vehicles versus electric vehicles (particularly as their risk profile increases as we move closer to legislative deadlines banning the sale of non-electric vehicles). The VW diesel-gate scandal was a good example where the indirect consequence was an astronomical level of investment in charging infrastructure especially in the USA, quickly removing barriers to the adoption of electric vehicles.

Amo Lalli, UK