Volkswagen AG (ADR) Crashed 30% On Dieselgate; This Stock Could Be Next

Volkswagen AG PlungedVolkswagen AG’s “Dieselgate” Has Opened a Can of Worms for the Auto Industry

The Volkswagen AG (OTC:VLKAY) emission scandal has reminded consumers and authorities that advantages in fuel consumption and environmental performance are difficult to measure, as are the benefits.

While the marketing is seductive, it turns out that the very same research center that published the data incriminating Volkswagen over its tricked emission reporting claims that a study on hybrid vehicles has revealed significant discrepancies between manufacturers’ claims and actual benefits. Accordingly, shareholders may want to consider watching Toyota Motor Corporation (NYSE:TM) more closely.

Volkswagen Stock Plunged 30% After “Dieselgate”; Is Toyota Motor Corporation Next?

Indeed, fuel consumption and emissions are actually much higher than those approved for hybrids. This is especially true for plug-in hybrid (featuring a larger capacity battery), as revealed by the International Council of Clean Transportation (ICCT). (Source: A 2015 update of official and “real-world” fuel consumption and CO2 values for passenger cars in Europe ICCT, last accessed October 1, 2015.) The ICCT is the same body that discovered the “trick” Volkswagen used to fudge its emission data.

The ICCT cited specifically data obtained from testing the Mitsubishi Outlander PHEV plug-in hybrid car, which has cornered its market segment in Europe. Owners of the Toyota Prius and the Nissan Leaf should be worried—as should their respective shareholders.

ICCT said that the Mitsubishi Outlander PHEV, despite having passed EU standards with CO2 emissions of 49 g/km in official certification tests, produces more than three times that amount in actual everyday driving, releasing about 150 g/km of CO2. While Mitsubishi hybrids might be popular in Europe and Japan, they are not as important to the U.S. and North American market.

Like many understated hybrid cars, the Mitsubishi Outlander PHEV was deliberately designed to look “normal.” It does not shout the environmental credentials of its owner, nor does it nag about them. Indeed, the car company that has most to fear from the investigation is Toyota, whose hybrid Prius is the poster child for socially responsible smugness.

Watch Toyota Stock Closely

Toyota would do well to act preemptively in order to suffocate rumors before they hit the mainstream. Even Toyota’s hybrid and plug-ins perform as promised in real-life driving conditions. The company can learn from the emotional wave surrounding the Volkswagen emission scandal.

Toyota is the world leader and standard-bearer of hybrids, having been the first to bring the technology to performance and luxury cars through its Lexus brand. Toyota stock and reputation have the most to lose from the ICCT allegations. Since 1997, Toyota has sold eight million hybrid cars and some three million remain on the road.

The problem is that hybrids are generally tested for CO2 emissions and consumption, running much of the distance of the tests in electric mode, starting with the battery on “full.”

Nevertheless, the real consumption and emission output on the road—what is actually experienced by the driver—is different.

Toyota is not just about hybrid cars. They also offer diesels. For the time being, the authorities have not targeted the Japanese maker or the company that Volkswagen dethroned from its number one spot earlier in 2015. However, Toyota stockholders might want to keep an eye on the stock and on news about Volkswagen and “Dieselgate” over the next few weeks.

The Irony of the VW Emission Scandal and Hybrids

In an ironic twist, just days before news of Volkswagen cheating on emissions of its popular diesel cars, the now disgraced and dismissed CEO Martin Winterkorn boasted of “reinventing Volkswagen” at the opening of the Frankfurt Auto Show on September 15. “We’re revolutionizing all points of view: structural, technological and economic,” bragged Herr Dr. Winterkorn.

He promised consumers and media pundits that the German (and world’s largest) carmaker would offer “more than 20 models plug-in hybrids and electric by 2020, spread across all segments, from the most compact, up to the flagship Phaeton and Audi A8.” Indeed, he stepped into the smugness zone noting: “our cars, smartphones with the wheels,” hinting that VW would be able to withstand competition from Apple, Google, and Microsoft. All of these companies are said to be developing self-driving electric cars. And let’s not forget Tesla Motors.

Perhaps Volkswagen thought it could get away with cheating on emission reporting and exaggerating fuel consumptions claims at the expense of other manufacturers like Ford and Fiat-Chrysler, which were found to be more honest about their degree of environmental responsibility.

In fact, the Dow Jones Sustainability Index—a prestigious club that serves as an effective marketing tool for companies wanting to present a “green” image—has banished Volkswagen from its ranks today. But are hybrids and electrics really the solutions over which so many environmentalists worldwide have been swooning?

The simple answer is: not really. A somewhat more analytical approach might suggest the following conclusion: it’s complicated. In relation to marketing efforts alone, hybrids have failed, as there are still few around even as the technology has been available for about 15 years to the mass market.

The technology is also rather complicated. Its price is so high that image, rather than concern over the environment or consumption, has motivated drivers who have switched to hybrid. In contemporary society, it is more important to appear a certain way than to actually be that way. A Toyota Prius or Nissan Leaf, one a hybrid and the other a plug-in hybrid, announce to the world that you are a responsible citizen.

Here’s the Bottom Line on Volkswagen Stock

Winterkorn should have talked less and put more attention on ensuring the current Volkswagen group product lineup addresses existing legal standards rather than promising the moon. Many automotive market analysts are suggesting that hybrids and plug-in electrics, as well as the less practical full-electrics as offered by Tesla Motors, will kill the diesel car.

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