Why Engine Manufacturer Cummins Shares Are Down Today

Cummins Inc CMI shares are trading lower after it penned an agreement in principle to resolve the U.S. regulatory claims regarding its emissions certification and compliance process for some engines of pick-up truck applications. 

The company will pay a penalty of $1.675 billion for settlement of claims that it violated the Clean Air Act by installing emissions defeat devices on hundreds of thousands of engines.

In particular, the company had allegedly installed defeat devices on 630,000 model year 2013 to 2019 RAM 2500 and 3500 pickup truck engines and undisclosed auxiliary emission control devices on 330,000 model year 2019 to 2023 RAM 2500 and 3500 pickup truck engines.

The Justice Department issued the following statement from Attorney General Merrick B. Garland, "The types of devices we allege that Cummins installed in its engines to cheat federal environmental laws have a significant and harmful impact on people's health and safety. For example, in this case, our preliminary estimates suggest that defeat devices on some Cummins engines have caused them to produce thousands of tons of excess emissions of nitrogen oxides. The cascading effect of those pollutants can, over long-term exposure, lead to breathing issues like asthma and respiratory infections."

Notably, Cummins disclosed a review of these matters in 2019 and has worked collaboratively with the regulators.

Concerning this, the company has already recalled model year 2019 RAM 2500 and 3500 trucks and has started recalling model years 2013 through 2018 RAM 2500 and 3500 trucks. The company has earlier accrued a total cost of $59 million for these recalls.

Cummins projects to record a charge of approximately $2.04 billion in Q4 FY23 for resolving these and other related matters involving about one million pick-up truck applications in the U.S. 

Of this, the company plans to pay about $1.93 billion in H1 FY24. The balance reflects the company's best estimate of related expenses that will impact cash flow in future periods. 

Also Read: Cummins Acquires Part Of Faurecia's Commercial Vehicle Exhaust Aftertreatment Business For €199.2M

Price Action: CMI shares are down 2.56% at $237.76 on the last check Friday.

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