Volkswagen Dieselgate Deal Clears The Decks For Recovery.
What If Ambitious VW U.S. Diesel Sales Targets Had Been Met?
“Investors, as VW management, can now focus almost solely on the fundamental turnaround of the VW brand and Group”
Volkswagen’s $4.3 billion settlement with U.S. authorities at least ended uncertainty about the final cost of dieselgate to the company, while one analyst mused that the price could have been mortal if VW’s ambitious U.S. sales plans for diesels had been achieved.
Investment researcher Evercore ISI said investors should be relieved that some clarity had been achieved, and that the financial hit was manageable.
Reuters Breaking Views column said VW should be thankful the damage was manageable, which was due in part to its failure to sell many diesel powered cars in the U.S.
Volkswagen pleaded guilty to criminal wrongdoing and would pay a $4.3 billion penalty to resolve a U.S. Justice Department probe of its diesel-emissions cheating.
Reuters Breaking Views columnist Olaf Storbeck said the cost of dieselgate should now hit more than €23 billion, although this doesn’t include the results of law suits which in Germany alone add up to €8 billion.
“The scandal’s financial fallout should be well below the €70 billion Breaking Views analysis in October 2015 estimated VW could digest without having to sell brands or raise equity,” Storbeck said.
Storbeck said only 20 per cent of U.S. VW car buyers chose the diesel option, compared with more than half in Europe. If VW had matched European diesel penetration it could have sold 2 million dirty diesels rather than the 600,000 it managed. Assuming constant costs and fines the U.S. tally alone would have reached €69 billion euros bringing the final tally well above VW’s comfort zone.
“Volkswagen’s emissions scandal is a rare example where failure eventually results in success,” Storbeck said.
Barclays Equity Research said the deal provides one more piece in the puzzle to refocus investor attention on fundamentals.
“It is an added relief for VW that the issue looks to be resolved under the current U.S. administration. We believe there is significant upside in the shares based on fundamentals and reiterate our OW (overweight) rating,” Barclays said.
Citi Research also thought the deal added to investor clarity.
“Despite the increase (in provision) we think the stock will respond well to the conclusion of these actions, although arguably the (stock) price action of recent days would suggest the market expected an agreement,” Citi Research said in a report.
After news broke about the deal VW shares zoomed 2 per cent, bringing the gain to over 13 per cent during the last month.
Citi Research said it expected its estimate of money VW needs to set aside to pay for dieselgate to increase by €3 billion euros from VW’s overall €18.2 billion provision.
Evercore ISI, long a cheer-leader for VW’s long-term recovery prospects, underlined its “buy” recommendation for VW shares.
“Investors, as VW management, can now focus almost solely on the fundamental turnaround of the VW brand and Group,” it said.