Volkswagen dieselgate bill took on an additional and surprising charge of $2.95 billion last week as woes continue to mount for the German automaker. Volkswagen’s Dieselgate Scandal Bill Reaches $30 Billion After New Charges Surface. The company announced that it would take a fresh charge to its third-quarter earnings; hence, investors might want to start lowering their Q3 expectations from the firm. According to a statement from the firm, the unexpected increase in the cost of fixing tainted diesel cars in the United States has inflated the bill to about $29.6 billion.
Volkswagen’s Dieselgate Scandal
After the surprise revelation on Friday morning, the company’s stock fell about 3% before climbing back up and settling at 1.5% on Friday afternoon. The company planned to release the third quarter financial report by the end of October.
Dieselgate is-‘Far from over’
The German automaker was involved in a diesel-emission scandal that was revealed in September 2015 after the company admitted that it used software in over 11 million diesel vehicles worldwide to bypass emission test carried out on the vehicles. This, however, landed the company a $25.96 billion fines in 2016 for the fraudulent act. The new increase in Volkswagen’s Dieselgate Scandal bills is coming up more than a year after the company reached a deal with the U.S. government to either buy back or fix more than 500,000 affected cars.
Since the scandal unveiled in 2015, the company has expended commendable effort to repair all the affected diesel cars in most parts of the world. However, the tough emission and fuel economy rules in the United States have made the job very difficult. Because of the tougher U.S. rules, fixing cars in the United States is taking longer time and technically tougher than expected, according to the statement released by the company last Friday.
In July, Volkswagen predicted that its 2017 revenue would be 4% more than the previous year and the expected pretax margin would be between 6% and 7%. In 2016, the company’s net income increased to $6.07 billion after losing $1.86 billion in 2015 causing the revenue to rise by 1.9% to $256.3 billion.
However, with the additional charge of $2.95 billion, the amount scheduled to cover the dieselgate scandal has been raised from the previous $25.6 billion to $29.67 billion. Some analysts have earlier predicted that the bills will run through 2017 and 2018. However, the newly included cost suggests that Volkwagen will probably be paying for Dieselgate up until 2019.
More trouble looming on the horizon
Although the German Auto manufacturer generates enough revenue to cover the cost of the diesel car issues, the more money it spends on diesel issues, the less it has to invest in new technology. According to estimates made by analysts, more than half of the $5.25 billion that is projected for the third quarter earnings will be wiped out by the $2.95 billion surprise charge. In addition, the Net liquidity of the company was $27.96 billion as at the end of June, which has seen a 17.5% decrease from last year.
There’s also trouble brewing on the horizon for the firm on the home front. For one, analysts have estimated that Volkswagen may spend close to another $1.4 billion to stave off the proposed plan by German cities to ban diesel cars as a way to reduce pollution. Nonetheless, a statement made by the company suggests that the cost of the program would not affect the company’s earning.