Volkswagen AG dropped the most in almost seven years after it admitted to cheating on U.S. air pollution tests for years, risking billions in potential fines and a backlash from consumers in the world’s second-biggest car market.
The shares declined as much as 17 percent, or 27.9 euros, to 134.5 euros in Frankfurt, the most since Nov. 3, 2008. The drop extends the slump for the year to 25 percent, valuing the Wolfsburg, Germany-based company at 65.3 billion euros ($73.9 billion). The stock traded at 137.8 euros at 9:34 a.m. in Frankfurt.
Volkswagen Chief Executive Officer Martin Winterkorn said on Sunday that the company is cooperating with the probe and ordered its own external investigation into the issue. The CEO said he was “deeply sorry” for breaking the public’s trust. VW has halted sales of the car models involved, which were a cornerstone of Winterkorn’s effort to catch up in the U.S. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible.
“If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG, whose share rating is under review.
The German carmaker admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday.
Analysts at Kepler Cheuvreux downgraded the shares to “hold” from “buy,” cutting their target price 27 percent to 185 euros. Volkswagen faces not only a short-term drop in sales and hit to its reputation but also the longer-term risk of litigation in the U.S., the analysts wrote in a note on Monday.
During normal driving, the cars with the software — known as a “defeat device” — would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissionedreal-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results.
Volkswagen had counted on clean, powerful diesel cars to help it build its sales in the U.S., where it has struggled for years. Sales of VW-brand cars in the country dropped 10 percent last year to 366,970.