Volkswagen is in crisis.
The CEO, Martin Winterkorn, has been ousted, according to German press reports in Der Tagespiegel, and he will be replaced by Porsche CEO Matthias Muller.
Last week news broke that VW used software to cheat emissions standards testing.
And on Tuesday the company announced the problem was worse than thought, affecting 11 million cars.
Since that story first hit, VW’s shares have been clobbered. They’re down by as much as 18% as of 14:47 p.m. UK time (9:47 a.m. ET) after losing more than 20% in trading on Monday — more than a third of the company’s market value has been wiped away in just 2 days.
Here’s what the analysts are saying.
Analysts: Stefan Burgstaller, Demian Flowers, Ashik Kurian and Matthew Chan
'Further implications could include:
Hampering the German diesel push: German OEMs have sought to raise the percentage of US car sales which are diesel to help lower CO2 emissions and leverage their engineering strengths.
Renewed scrutiny likely on accuracy of test cycles: It is well known that emissions test cycles (globally not just in the US) have limited accuracy in representing real world driving conditions and following this allegation this is likely to come under more scrutiny.
We expect a significant negative share price reaction for VW but the shares for all OEMs could experience collateral damage.'
Analyst: Douglas Karson
'The headlines this morning drove the U.S. VW 5yr bond about 60bp wider. Although the situation looks bad, the VW 2.4% bond due 2020 (A2/A) is now trading 15bp behind Ford Credit 3.157% due 2020 (Baa3/BBB-). The extent of the VW widening is surprising to us.
Effect on suppliers likely limited. The VW emissions scandal may have mild spillover effects to auto suppliers. We see BorgWarner (BWA) and Tenneco (TEN) having the most exposure given their specific involvement with VW's diesel engine production and emissions control technology. In 2014, BWA had about 17% of its revenue from VW, while TEN had about 8% of its revenue from VW.'
Analysts: Harald C. Hendrikse, Victoria A. Greer, Lucile Leroux
'We see three key implications from this issue:
1) VW faces large potential penalties of up to $US37.5k per vehicle found not in compliance,according to theEPA, thus adding to a worst-case $US18bn penalty risk;
2) VW will have to bring the cars involved into compliance, which may involve significant costs and /or compensation for VW's customers, which again would likely involve significant costs;and
3) VW (and to some degree Audi) brand performance in the US (and possibly globally) may suffer if the brand reputation is tarnished, just as VW was due to re-launch in the US with new SUVs in 2016. 'Clean diesel' claims at the very least are likely to suffer sharply.Whilst VW has plenty of industrial net cash, operating performance in our view is likely to suffer for sometime.'
Analysts: Tim Rokossa, Felicitas Bismarck, Christoph Laskawi, Melina Loudolph, Gaetan Toulemonde
'At the very least it makes the targeted US turnaround significantly harder (DB: EUR 500m of profit in that region this year going to EUR 1.2bn by 2017) not just to talk about longer-lasting regulatory and reputational consequences.
This would likely also not go down well for the long-awaited breakthrough of Diesel engines in the US that VW was pushing for quite some time. Another key question is if this will have consequences for other regions (in Europe the market share of Diesel is obviously much higher) and if customers would claim damages.'
Analysts: Alexander Haissl, Fei Teng
'Financial implications could be material: The balance sheet is at significant risk to deteriorate beyond the impact of the €6.5bn provision the company has announced so far.
With group free cash flow generation largely dependent on China (we estimate 94% of industrial free cash flow -- 78% dividend from JV), there could be increasingly risk to dividend payments.'
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