Combustion engines are carmakers’ toxic assets – Reuters

Automobiles are shown for sale at a car dealership in Carlsbad, California, U.S., May 2, 2016. REUTERS/Mike Blake/File Photo

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LONDON, Dec 22 (Reuters Breakingviews) – Internal combustion engines may be the toxic assets of the electric-vehicle revolution. Volkswagen (VOWG_p.DE), Ford Motor (F.N) and other industry veterans are rapidly shifting to battery-powered rides, while demand for automobiles that burn fossil fuels is dying. After the 2008 financial crisis, banks cleaned themselves up by shifting dud loans into so-called bad banks. Carmakers could do something similar.

Setting up bad banks helped lenders limit their exposure to questionable assets and present a healthier image to shareholders. Carmakers’ combustion engine divisions aren’t quite as toxic: for one, they’re still profitable. But their days are numbered. In Europe, over three-quarters of new cars will be electric by 2030, according to Jefferies analysts. Spinning off gas-guzzling divisions could limit exposure to shrinking assets and highlight the value of Tesla-like (TSLA.O) electric businesses.

Take Volkswagen. Assume electric vehicles bring in a fifth of the German carmaker’s sales by 2025, producing revenue of 55 billion euros, according to calculations based on Refinitiv data. Put that on a conservative multiple of 3 times – roughly a third of Elon Musk’s group’s equivalent valuation in early December – and the business would be worth around 160 billion euros today. That’s about the same as VW’s entire worth, including debt.

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The Federal Aviation Administration (FAA) on Wednesday issued directives requiring inspections and strengthening a key engine part on Boeing 777-200 planes equipped with Pratt & Whitney (PW) engines.

The directives were prompted after a United Airlines 777 PW4000 engine failed shortly after takeoff from Denver on Feb. 20, showering debris over nearby cities, but no one was injured and the plane safely returned to the airport.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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