VW Shares Take A Hit As Diesel Scam Spooks Investors.
“This is bad stuff. It smells of lack of control, hubris and denial”
Volkswagen shares dived around 20 per cent in Europe on September 21, as investors feared the long term implications for the company of apparently fiddling its data in the U.S. to make its diesels appear cleaner than they were.
Investors worried that this might not only cripple its diesel sales in the U.S., but have a negative taint on its business there generally. Some thought some leading VW executives might have to fall on their swords.
Others feared that the issue might hurt car makers in Europe too, following claims that diesels which have passed the latest, more rigorous E.U. tests in laboratories, then fail hopelessly on the road.
Daimler, owner of Mercedes-Benz which also has a huge diesel portfolio, said its business wasn’t affected by the EPA ruling. By mid-Monday, BMW hadn’t made a statement. Daimler and BMW shares fell about four per cent in Europe this morning.
VW is accused of designing software for some of its core brand and its Audi subsidiary’s diesels to deceive regulators measuring toxic emissions.
Investors were almost stunned into disbelief by VW’s actions.
“In a move more worthy of a back-street garage looking to get a used car through a mandated vehicle inspection, VW, the company with the largest R&D budget globally in any sector, has admitted to doctoring its cars in order to ensure that they are compliant with EPA standards,” said Arndt Ellinghorst, analyst with investment researcher Evercore ISI.
“This is bad stuff. It smells of lack of control, hubris and denial,” he said.
Commerzbank analyst Sascha Gommel was almost as scathing.
“VW’s image will probably take a massive hit and sales should be set for another decline. In addition, diesel cars in general will probably take a dive in coming months, which is also negative for the other German (manufacturers),” Gommel said.
“We wouldn’t rule out this triggering management changes at the top. There will very likely be investigations in other regions as well,” Gommel said.
In Europe, there have been suspicions that the latest E.U. emissions rules for diesels are being manipulated by the car manufacturers. The rules state that diesel cars must emit no more than 80 milligrams of NO2 per kilometre. Brussels based green lobby group Transport & Environment said in a report vehicles from VW, Peugeot’s Citroen, GM Europe’s Vauxhall, BMW and Mercedes-Benz emitted on average four times more than the legal limit on the road.
Investors were trying to quantify VW’s financial liability from the controversy.
Evercore ISI’s Ellinghorst said he didn’t expect the EPA fine to be as much as the theoretical maximum of $18 billion, but it wouldn’t be negligible.
“We suspect this story to weigh on the stock until there is greater clarity with respect to the size of the fine, the potential damage to VW’s reputation in the U.S. and a ruling out of contagion to other regions/models,” Ellinghorst said.
He thought though, on the bright side, it might trigger needed changes in top management. This controversy might lend weight to politicians in Paris and London who have been outspoken in their desire to limit diesel traffic in city centers. He didn’t think that increasing anti-diesel sentiment would have a material impact on VW’s sales or profitability.
Commerzbank’s Gommel wondered if VW, as well as paying a hefty fine, might have to buy back offending diesel cars in the U.S.
“It is not only a blow for VW, but for diesel cars in general as VW is a major producer of clean-diesel technology. We expect significant impact on diesel sales going forward. VW sales in general should be set for another step down as should the share price,” Gommel said.
By mid-morning in Europe, VW shares had fall to 129.7 euros, off 19.6 per cent, according to Reuters. BMW was at 83.22 euros off three per cent and Daimler at 69.42, down four per cent.