The Week That Was: Volkswagen


New developments regarding Volkswagen AG (OTCMKTS:VLKAY) and its massive dieselgate scandal keep coming thick and fast, since the news that the German automaker falsified emission results on millions of its vehicles first broke in September. In this article, we will discuss the new rounds of announcements by Volkswagen, a set of fines imposed on the group, and the dynamics in play.

After nearly 40% of Volkswagen’s value was wiped out within days of the announcement that a defeat device in 11 million vehicles worldwide helped cheat on emission tests, the stock has rallied back, only just, gaining 5.3% in the last week. It’s still 25% or so shy of what it was trading at in mid-September. Just when one would think that the precipitous fall in Volkswagen’s value has created a buying opportunity, the group announced that another 800,000 vehicles have ‘implausible’ CO2 ratings, with over 50% of these vehicles belonging to the current model year. The new revelation roped in petrol vehicles, too, for the first time in the scandal.

We have a $32 price estimate for Volkswagen, which is above the current market price.

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

See Our Complete Analysis For Volkswagen AG

 

Adding insult to injury, Audi recently issued a statement revealing that around 85,000 vehicles in the U.S. used questionable emissions software. All 3-liter V6 diesel engines in Audi U.S. models A6, A7, A8, Q5, and Q7 from model year 2009 onward, Volkswagen Touareg, and Porsche Cayenne (since model year 2013) used three auxiliary emission control devices (AECD) that were not declared in the context of the U.S. approval documentation. One of the AECDs is regarded as a defeat device according to applicable U.S. law. ((Volkswagen press release)) This follows the EPA’s earlier allegations that it had discovered the defeat device on more Volkswagen group vehicles than was previously disclosed. The second round of EPA allegations covered an estimated 10,000 passenger vehicles already sold in the U.S. since model year 2014. Volkswagen had then issued a statement denying that its 3-liter V6 diesel power units were fitted with the software that helped cheat on the emissions tests. The admission now puts Volkswagen in an awkward position. Audi said that it has extended the voluntary sales stop for models with the V6 TDI diesel engine until further notice. Installation of the updated software in the affected vehicles will be another mid-double-digit-million-euro dent in Volkswagen’s purse.

In addition, Last week South Korea fined Volkswagen $12.3 million and ordered recalls of 125,522 diesel vehicles, following findings that the group cheated on emission tests. [1]

Amid the new set of discoveries, the group has announced its ‘fixes’ for the diesel vehicles affected by the defeat device in Europe. The 1.6-liter EA 189 engine will get a ‘flow transformer’ to assist the engine’s computer in calculating the right amount of fuel and air being combusted, while the 2.0 liter engines will get a software update. [2] The fix for the 1.2 liter engine is still under consideration.

The problem for Volkswagen is that when the group puts together a plan to start damage control, more pieces seem to fall apart, and as seen from the inclusion of the 800,000 vehicles with implausible CO2 ratings, irregularities are also being found in completely different parts of the testing and approval processes. This weakens Volkswagen’s claims that the scandal was an isolated mishap limited to only a group of engineers who went rogue. The group is looking to win back customer trust and comply with authorities to limit further damage.  However, more and more accounts of irregularities leave Volkswagen’s customers, investors, regulators, and legislators, more unsure about the German automaker’s discretions.

See the links below for more information and analysis:

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

 

Notes:
  1. South Korea fines VW US$12 million []
  2. Volkswagen press release []