Is the Worst Over for VW Stock?
There was some good news for Volkswagen AG (ADR) (OTC:VLKAY) and shares responded promptly, rising well over five percent to go above $30.00 a share, a price not seen since the middle of October. Is the worst over for VW stock? Maybe.
Volkswagen stock reacted to news that the manipulation of CO2 emissions from its diesel engine cars, as part of the episode widely known as “Dieselgate,” is now thought to concern only 36,000 new models—that is, cars that have yet to be sold. Evidently, this is a much easier number to manage than what VW had initially estimated to be 800,000 vehicles. (Source: “VW says CO2 emissions scandal not as bad as feared,” Reuters, December 9, 2015.)
However, the study in question concerns the second part of the scandal, which relates to carbon dioxide rather than just the nitrogen oxide (NOX) emissions; VW is accused of having installed a special device to reduce those values during official testing.
Such are the results of an investigation by the German government’s transportation authority, Kraftfahrt-Bundesamt. Until the result of this re-evaluation was published, Volkswagen was looking at a financial loss of well over $2.0 billion, not to mention the time needed to address the issue. (Source: “Volkswagen Terms One Emissions Problem Smaller Than Expected,” The New York Times, December 9, 2015.)
Volkswagen said that the affected models would be modified in order to comply with the existing standards, such that they can be remeasured by a neutral service company, supervised by relevant authorities, in time for Christmas. Dealers will be able to sell the cars that pass the tests without limitations. VW will continue to modify any cars that fail until they are fully compliant.
Volkswagen Investors Breathing a Sigh of Relief
Owners of VW stock have shown their optimistic sentiment after having to absorb a series of blows following the break of Dieselgate. Fortunately, the suspicion that fuel consumption figures for currently produced cars were also altered has not been confirmed, as German authorities found that the nine different models tested showed only minor variations and not enough to be conclusive.
Volkswagen management met this morning in what will presumably be the last session of the company’s “Year of Crisis 2015.” Among the topics on the agenda was the appointment of the new head of personnel, which will be an important move, given that certain managers and engineers were complicit in the policies leading to Dieselgate. Karlheinz Blessing will now hold the post.
Porsche Sales Soar in 2015
The iconic German sports car brand sold 24% more cars from January to November 2015 than the previous year, exceeding the 200,000-vehicle mark and achieving a new record, thanks to its “Cayenne” and “Macan” SUVs.
Broken down geographically, Porsche sales rose by 10% in Europe in November; saw a one-percent increase in the Asia Pacific, Africa, and Middle East markets (+14% in China, though); and experienced a four-percent decline in the Americas (down five percent in the U.S. specifically). (Source: “Porsche Surpasses 2014 Sales in Ten Months,” GT Spirit web site, November 10, 2015.)
Meanwhile, in a sign of apparent redemption, Volkswagen announced that it would introduce a new all-electric vehicle at the Las Vegas Consumer Electronics Show (CES), the premier global event for consumer electronics, on January 5, 2016. The new VW-branded electric car will share a stage with an electric concept vehicle from Audi (a VW Group brand) and BMW, which will launch the open-top version of its “I8” plug-in electric/hybrid sports car. The new Chevrolet “Bolt,” a plug-in concept derived from the homonymous view at the last Detroit Motor Show, and the mysterious “Faraday Future,” an anti-Tesla electric prototype, will also be present. (Source: “Volkswagen will unveil an electric concept car next month,” TechInsider, December 9, 2015.)
The Bottom Line on VW Stock
Investors can be pleased by Volkswagen’s participation at the Las Vegas CES, because it will cement the company’s efforts to recover from the emissions scandal, outlining an aggressive sustainability strategy and how this concept will play an ever more important role in the company’s future. CES will give VW the opportunity to show the world its plans for the future and its vision for sustainable transportation.
The perception of change and the resized emission scandal suggest that VW stock may be a bargain at current price levels, given the company has veered back to the path of redemption, and is worth a second look at this time.