VW Expected To Weather Stock Manipulation Charges.
“These charges will trigger a long lasting court case and we believe it unlikely VW will face material negative financial or management consequences”
Volkswagen CEO Herbert Diess was accused by German prosecutors Tuesday of failing to inform investors about the financial impact of the dieselgate scandal, and initial reaction suggested a long court case was inevitable but the company wouldn’t suffer big financial or personnel damage.
Diess and VW Chairman Hans Dieter Poetsch were charged with market manipulation in Germany over allegations they failed to inform investors early enough about the diesel-emission scandal. Former CEO Martin Winterkorn was also charged in the case, filed by Braunschweig prosecutors. Braunschweig is close to VW’s Wolfsburg headquarters.
VW said the charges were groundless.
Diess said he would continue to perform his duties as CEO.
In September 2015, VW admitted using software in 11 million diesel vehicles to cheat emissions test, and this has cost the company about $33 billion so far. Diess joined VW in July 2015.
Investment researcher Evercore ISI said the case is likely to take many years.
“The underlying question is whether the accused have deliberately misinformed the financial market in order to manipulate VW’s share price in the months prior to the eruption of the Diesel scandal 18 September 2015,” Evercore ISI analyst Arndt Ellinghorst said.
Ellinghorst said VW management believed the problems with the diesels in the U.S. could be solved with a technical solution, but even if they acted negligently, it would need to be proven that there was a deliberate intention to misinform the market and manipulate the share price. Also as Diess joined the VW board in July 2015, it was unrealistic to assume he could have uncovered the scale of the issues and then acted criminally in just weeks.
“All in all, from what we understand these charges will trigger a long lasting court case and we believe it to be unlikely that VW will face material negative financial and/or management consequences,” Ellinghorst said.
Weaker without Diess
Reuters Breaking Views column posed the question that Diess might be forced out, but pointed out how VW would be weaker without him. Although PSA Group’s share price has risen 13% since April, VW’s share price has fallen about 15%, but that’s twice as good as Daimler, BMW and Fiat Chrysler Automobiles.
“Diess’s relatively compelling strategy has allowed him to shrug off some of the wider sector’s gloom over the trade war and economic slowdown. He is betting everything on electric vehicles (EV): a Reuter’s analysis in January concluded his group accounted for almost one-third of the $300 billion that global automakers had earmarked for EV investments in China, Europe and North America. VW looks set to have the world’s largest EV platform in time, and has struck a deal with Ford Motor’s well-regarded autonomous-driving unit. Diess has also listed a chunk (floated off) his 13 billion euro ($14.3 billion) truck unit, showing that the 82-year-old group is capable of reform,” Breaking Views columnist Liam Proud said.
“As such VW has one of the soundest carmaker strategies, and is making decent progress delivering it. It might therefore take an actual criminal conviction for the board to oust him,” Proud said.
Volkswagen’s preference shares closed at 155.50 euros, down 2.3% on the day, while the STOXX 600 auto industry index fell just 1.3%.