PARIS (Reuters) – Peugeot maker PSA Group, which paid General Motors 1.3 billion euros for Opel, now wants about half of the money back after discovering the full extent of its CO2 emissions challenges and exposure to European fines, sources told Reuters.

PSA (PEUP.PA), which completed the acquisition in late July, said earlier this month it will need to move Opel models onto its own more fuel-efficient technology faster than planned, in order to cut carbon dioxide emissions before new EU limits are phased in from 2020-21, backed by hefty penalties.

The French carmaker has told GM (GM.N) it believes it is owed more than half a billion euros and intends to pursue a legal claim on the grounds that it was misled about Opel’s emissions strategy, two people familiar with the matter said.

PSA is seeking 600-800 million euros, according to one.

The companies have discussed the grievances raised by PSA, which has yet to initiate a formal claim, sources close to both manufacturers said.

“We are not aware of any claim submitted by PSA regarding future CO2 targets and we cannot speculate on issues that have not been raised with us,” GM spokesman David Caldwell said. He declined to say whether Opel emissions had been discussed.

“PSA undertook a robust due diligence process including their employees and many experts and lawyers,” Caldwell said. “We provided them with substantial information.”

PSA spokesman Bertrand Blaise declined to comment. The group’s shares fell 3.9 percent to close at 17.30 euros, while GM was down 2.1 percent at $43.98 as of 1620 GMT.

Carmakers are scrambling to reduce carbon emissions by the 2021 deadline, when their individual EU-imposed limits will fall to an average 95 grammes per kilometer from 130 grammes today. A decline in diesel sales is complicating their task, as consumers switch to less fuel-efficient gasoline cars.

The challenge is sparking big investments in smaller engines and new powertrain technologies, from battery-powered cars to rechargeable hybrids. For those who miss their targets, fines of 95 euros per vehicle, per excess gramme of CO2, could add up to hundreds of millions of euros annually.

PSA believes GM misrepresented Opel’s CO2 challenges and emissions trajectory during negotiations and due diligence prior to the March acquisition deal and its formal closing on July 31.

Chief Executive Carlos Tavares has publicly hinted as much.

“We became aware a few weeks after we finalised the closing that the company was going to the wall on CO2 emissions,” the PSA boss told reporters on Nov. 9, after presenting a heavily revised turnaround plan at Opel headquarters near Frankfurt. PSA shares have since fallen 14 percent, underperforming peers.

“We put our teams to work to completely rebuild the product and technology strategies,” Tavares said. “If you fail to comply (with EU rules) the weight of fines you are hit with can threaten the company’s existence.”

‘ENORMOUS LOSSES’

Among the unpleasant surprises was a CO2 compliance plan that relied on significant sales of the Opel Ampera-e electric car, a U.S. import based on GM’s Chevrolet Bolt, at a loss approaching 10,000 euros per vehicle, two sources said.

“Their technical solution was economically unviable and would have led to enormous losses,” said one. “So the first thing you do is drop that (product) line, but then the fleet emissions explode.”

Under PSA, Opel has already suspended Norwegian sales of the Ampera-e – which account for most of the model’s 1,500 deliveries to date – and increased European pricing by as much as 5,700 euros.

Paris-based PSA may struggle to convince GM’s lawyers – and ultimately an arbitration panel – that it was not already well aware of Opel’s weak emissions track record and outlook.

Presenting the deal alongside Tavares almost five months before it closed, GM boss Mary Barra cited “increasing regulatory and compliance costs” as a key reason to offload Opel and its Vauxhall sister brand. “The Opel/Vauxhall business model has become more difficult,” she said.

Prior to the sale, Opel was on course to miss its CO2 target by 3.7 grammes, according to a PA Consulting study published in November 2016. Stripping out the Ampera-e, then projected to reach 20,000 annual sales, the overshoot rose to 6 grammes.

“We’ve been reporting for years that Opel/Vauxhall would have significant problems meeting the CO2 targets as GM brands in Europe,” said Thomas Goettle, the firm’s head of automotive.

“Opel is five to seven years behind with their engine lineup,” Goettle said. “We haven’t seen any big GM investments in Opel to develop plug-in hybrids or zero-emissions cars.”

‘UNDER THE RUG’

But Opel’s real situation turned out to be even worse, PSA sources said, with the company on course to miss its CO2 goal by more than 10 grammes – a multiple of the “slight overshoot” discussed in deal negotiations. A margin that large would incur EU fines approaching 1 billion euros.

The gap partly reflects GM’s unrealistically high diesel sales assumptions and reliance on the Ampera-e, they said.

“People who had worked on the closing realized quite quickly that there were these big discrepancies,” said one. “They had been swept under the rug.”

PSA is now rushing out electric or plug-in hybrid versions of Opel’s Corsa, Grandland X and Crossland X models that were not part of the original plan it presented in March.

The entire Opel lineup will be redeveloped with the French carmaker’s vehicle architectures and engines by 2024, three years earlier than initially planned, Tavares said on Nov. 9.

“Given comments about the need to accelerate the transition of Opel vehicles to PSA technology, we assume PSA will write down the value of its investment in Opel,” Jefferies analyst Philippe Houchois said afterwards, predicting more than 1 billion euros in writedowns over the next five years.

The company paid for Opel with 650 million euros in cash and another 670 million in warrants that later convert to PSA stock. PSA and BNP Paribas (BNPP.PA) also bought Opel’s sales financing arm in a separate 900 million-euro transaction.

The acquisition deal, published in GM regulatory filings, provides for compensation payments if either party has been misled. Claims not settled by negotiation are referred for arbitration. For tax purposes, a GM payment to PSA would be treated as a deduction from the purchase price.

It would also add to a European exit bill already exceeding $6 billion for GM, net of sale proceeds. That reflects a $5.5 billion charge and 3 billion euro contribution to Opel pensions, while excluding billions more in pension liabilities it kept.

During the deal negotiations, GM barred Opel staff from talking to PSA and insisted the French carmaker’s due diligence requests be handled by its Detroit headquarters, sources said.

“One question that was asked was whether Opel could meet its 2021 emissions target,” said one French participant. “And the answer was ‘yes’.”