Why Mitsubishi Motors’ Emissions Problem Won’t Clear Quickly
Shares of car maker Volkswagen have yet to recover since the emissions-test scandal broke in September
It might have made the stock 15% cheaper, but an emissions problem of unknown proportion at a second-tier Japanese auto maker isn’t the entry point a value investor should be looking for.
Eight months after Volkswagen, Mitsubishi Motors became the latest global car maker to become ensnared in emissions problems when it said Wednesday that its fuel-economy tests were “improper.” The company’s shares plunged on the news. So far, four models are involved, all minicars, a type of vehicle especially diminutive in size, and all sold in Japan.
Japan’s sixth-largest auto maker supplied two of these models to bigger peer Nissan Motor, and says it will discuss compensation with Nissan, meaning Nissan’s shares should be spared. Of the 625,000 vehicles affected, most were supplied to Nissan, though Mitsubishi directly sold 157,000. That smaller number is roughly 40% of all the cars it sold in Japan since then. This isn’t just some niche model at stake.
Mitsubishi has a long history of run-ins with the law. In the early part of the previous decade, the company’s truck affiliate admitted that it concealed defects in vehicle parts, which at times caused the wheels to come off the vehicle, for instance.
Investors will then be right to ask what other wheels come off if the current issue progresses. Regulators in other markets could commence investigations into Mitsubishi nameplates. Asia, excluding Japan, accounts for one in three of Mitsubishi’s vehicles sold; North America one in eight.
The bigger unknown: Mitsubishi hasn’t explained to what extent its tests were “improper” compared with regulatory requirements, and whether this was willful fraud or plain incompetence. That makes it hard to predict the extent of potential fines or lawsuits.
Meanwhile, the broader global economy isn’t any kinder to the firm. Mitsubishi is exposed to slowing economies in Asia. An appreciating yen especially hurts since the company manufactures heavily at home, and exports most of those cars abroad.
Shares in Volkswagen, with its mighty brand and engineering prowess, still haven’t recovered from their fall in September. If that’s the model, investors shouldn’t place much hope in a quick restart for Mitsubishi.