Barron’s financial newspaper has issued a warning against buying shares of Volkswagen AG before the diesel emissions scandal has a clear ending in sight as investors might see their holdings bleeding money.
According to Barron’s, Volkswagen’s shares currently trade around 5.1 times the forecasted earnings for next year and 0.6 times book value, but current analysts’ earnings predictions have not been able to take into account the potential charges originating from the crisis’ fallout. The world’s largest automaker (interim) by sales and the biggest in Europe has admitted last week in front of US regulators it had used “defeat” devices that used software to cheat on emissions testing procedures when diesel-powered vehicles were involved. The cars were programmed to detect the specific conditions of laboratory testing and altered the way the diesel engines ran to lower the real-world emissions. The company could face potential charges of around $18 billion in the United States alone, and more fines could be levied in Germany and other countries. The home country has already found that about 2.8 million vehicles have used the software – about six times the figure in the US, signaling the cheating was done on a much wider scale than anticipated.
Volkswagen is now being lead by a new chief executive officer, Matthias Mueller, taking over from Martin Winterkorn who assumed responsibility and resigned on Wednesday last week. The company has admitted it had used the software in around 11 million vehicles around the world, prompting a heavy share loss that has wiped about one third of its market cap.