Volkswagen share price tumbles on US emission issue, sales halt

Shares of German carmaker Volkswagen AG plunged by more than 20% on Monday after it ordered US dealers to halt sales of some diesel cars following accusations by local authorities of falsifying emissions data.

Volkswagen, which managed to overtake Japans Toyota in the first half of the year as the worlds biggest auto maker by sales, admitted to have used software to deceive regulators measuring toxic emissions and added it has ordered an external investigation into the matter.

The US Environmental Protection Agency and the California Air Resources Board alleged on Friday that the company used a so-called “defeat device” software to make diesel-powered engines appear during laboratory testing as emitting lower levels of emissions than they actually do in normal exploitation. The EPA said that diesel variants of several Volkswagen and Audi models sold in the US had been equipped with sophisticated algorithms to manipulate test results.

According to experts, they allow cars to achieve better fuel economy during normal driving at the expense of higher nitrogen-oxide emissions and can enable full emissions controls only during testing, resulting in the emittance of nitrogen oxides at up to 40 times the allowable standard.

The auto maker confirmed on Sunday that it had suspended from sale cars fitted with its popular four-cylinder 2.0-liter turbo direct injection, or TDI, which is commonly found in the Passat, Jetta and Golf models, as well as in the Audi A3. The suspension also includes any certified pre-owned versions of the affected models at dealerships made since 2009.

The allegations involve about 482 000 diesel-powered cars sold since 2008, and with a potential civil penalty of $37 500 per vehicle, the German company could face fines of as much as $18 billion, US officials said.

“We have admitted to it to the regulator. It is true. We are actively cooperating with the regulator,” a Volkswagen spokesman said on Sunday.

Even before the discovery, the carmakers namesake brand was suffering declining sales in the US market, while its luxury brand Audi was finding it difficult to catch up with its main rivals BMW AG and Daimler AG. It also comes just as the company was poised to clear doubts about its leadership at a supervisory board meeting on Friday where it is aiming to decide on a new structure and management lineup. Earlier this year, Chief Executive Martin Winterkorn survived efforts by former chairman and company patriarch Ferdinand Piech to oust him and VW proposed to extend his contract for two years.

“I personally am deeply sorry that we have broken the trust of our customers and the public,” said Mr. Winterkorn. “We do not and will not tolerate violation of any kind of our internal rules or of the law. We will co-operate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case.”

Volkswagen AG tumbled 20.44% to €129.20 per share by 09:56 GMT in Frankfurt, marking a year-on-year drop of 26.72%. According to the Financial Times, the 28 analysts offering 12-month price targets for Volkswagen AG have a median target of €237.50, with a high estimate of €300.00 and a low estimate of €152.00. The median estimate represents a 46.24% increase from the last price of €162.40.