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8 Things Everyone Wants To Know About The Volkswagen Scandal

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8 Things Everyone Wants To Know About The Volkswagen Scandal
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  • Though it is bouncing Wednesday, Volkswagen AG (ADR) (OTC: VLKAY) is down nearly 30 percent since news of an emissions scandal broke this week.
  • Bernstein's Max Warburton answered the eight most common questions, noting that only the most "brave investors" who desire auto sector exposure should look into the name.
  • At the same time, Volkswagen is "toxic" at the moment, so there is also risk that it becomes a "value trap at best," according to Warburton.
  • Bernstein's Max Warburton outlined eight questions that investors are asking following the emissions scandal that caused the company to oust its CEO on Wednesday. That is a move that Warburton called when he said that a management change at VW was "inevitable."

    The 'End Of Diesel'

    Critically, Warburton also said that he believes this scandal signals the "end of diesel." Among already increased scrutiny, this news will act as a catalyst for the fall in diesel's market share in Europe and a halt in market share in the United States. Tougher tests will either be prohibitively expensive or too difficult for diesel cars to meet, Warburton predicted.

    Related Link: The Fall Of Volkswagen: How Analysts Are Reacting

    Reiterating Outperform Rating

    Finally, Warburton reiterated the firm's Outperform rating on the stock and a price target of €200 on the European shares. However, in discussing the 30 percent selloff, he added that only "brave investors" should venture into shares – with much of the future still in doubt.

    Warburton did, however, compare this scandal to BP plc (ADR) (NYSE: BP)'s Horizon leak – noting that shares there only dipped 50 percent.

    The Other Five

    Here's how Bernstein is approaching the other five critical issues:

    • Might VW have been doing something similar in Europe? Bernstein said yes, though Warburton noted that the European standards were easier with less of a "need to cheat." Regardless of whether VW was breaking the rules, Warburton suggested that it would lead to tougher tests across the globe.
    • Will other OEMs be affected in Europe? The "whole industry is likely to face a rapid increase in test standards, intensity and enforcement," despite the view that VW is unlikely to be fined or prosecuted in Europe.
    • Are other OEMs likely to have used similar tricks in the United States? Bernstein said that the "cynicism is probably now warranted," but that other automakers were unlikely to use software fixes.
    • Will VW be affected in China? Since almost all of the cars sold in China are gasoline, not diesel, Bernstein does not see China as an issue for the company.
    • Could the total number of cars impacted be more than 482,000? Warburton said that the final tally might exceed the 482,000 – but it's unlikely to be a meaningful increase. The EPA's official notice warned of 518,000 VW and Audi cars at fault – with the risks of a widened investigation being low.

    Image Credit: Public Domain

    Latest Ratings for VLKAY

    DateFirmActionFromTo
    Nov 2016Goldman SachsUpgradesSellBuy
    Nov 2016HSBCUpgradesHoldBuy
    Aug 2016JefferiesInitiates Coverage onUnderperform

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