German authorities have raided Hyundai (005380.KS) and Kia (000270.KS)over allegations that they put over 210,000 diesel vehicles with suspected illegal defeat devices onto the road, the Frankfurt state prosecutor’s office said on Tuesday.
The announcement sent shares of the two South Korean automakers down more than 6% on Wednesday, as investors fear it may lead to an expansion of the investigation and punitive damages.
Defeat devices are mechanisms or software that can change vehicle emissions levels, leading to disputes over whether manufacturers use them to mask the true pollution levels of their vehicles. Volkswagen (VOWG_p.DE)admitted in 2015 to using software to cheat U.S. emissions tests on some diesel engines.
The engine software that Hyundai and Kia used is thought to have come from parts companies Bosch (ROBG.UL), and Delphi, which today is owned by the Borgwarner group (BWA.N), according to a statement by the prosecutor’s office.
Authorities searched the business premises at eight properties in Germany and Luxembourg in an operation coordinated by the European Union agency Eurojust.
A spokesperson for Hyundai Motor Group in Seoul, representing Kia and Hyundai, confirmed the raids and said the company was working with the authorities.
Kim Joon-sung, an analyst at Meritz Securities in Seoul, said the investigation could be expanded or lead to punitive damages. But he added no issues were found when all Hyundai and Kia diesel models sold in Europe were investigated in the mid-2010s for potential manipulation of emissions.
Shares of Hyundai Motor and Kia plunged 5% and 4%, respectively, as of 0435 GMT, underperforming broader market’s (.KS11) 1.5% drop.