VW Takes New $2.9 Billion Hit From Diesel Scandal -- 2nd Update
The bill for Volkswagen AG's diesel-emissions cheating scandal jumped by EUR2.5 billion ($2.94 billion) to just under $30 billion, after the company said it would take a fresh charge to third-quarter earnings, citing the higher-than-expected costs of fixing cars in the U.S.
Volkswagen shares fell as much as 3% after the surprise disclosure early Friday, before clawing back some ground to trade down 1.5% at EUR136.3 in the early afternoon.
The new write-down comes as many investors had hoped the financial fallout from the scandal was in the company's rearview mirror. It also lands as Volkswagen and its rivals face billions of dollars in new costs, as they and a handful of upstart entrants race to develop new technology to mass-produce electric and self-driving cars.
In late 2016, Volkswagen pleaded guilty to conspiracy to defraud the U.S. government over the diesel scandal and agreed to pay nearly $25 billion in fines, penalties and compensation, after it settled a number of civil lawsuits. Two Volkswagen employees have also faced charges in the U.S., with one sentenced to just over three years in prison.
The scandal came to light in September 2015, when the company admitted some 11 million of its diesel vehicles world-wide were equipped with software that allowed them to sidestep emissions testing.
The company is scheduled to present third-quarter financial results late next month.
Volkswagen generates enough cash to cover the continuing costs of diesel issues, but the more it spends on diesel the less money it has to invest in new technology. Net liquidity was EUR23.7 billion at the end of June, down 17.5% from a year earlier.
In July, Volkswagen predicted global revenue would increase more than 4% this year, with a pretax profit margin of between 6% and 7%. The company reported net income of EUR5.14 billion in 2016 after a loss of EUR1.58 billion the year before. Revenue rose 1.9% to EUR217.2 billion.
With the additional charges, the German auto maker has increased its provisions to cover the costs of the diesel scandal to EUR25.1 billion, ($29.67 billion) from EUR22.6 billion previously. Analysts had expected the bulk of those outlays to be paid this year and next. Now, that is likely to run into 2019.
Volkswagen regularly monitors the progress of fixing the millions of tainted diesel vehicles world-wide. While most of the cars in Europe have been repaired, tougher emissions and fuel economy rules in the U.S. have made the job more difficult, the company said. The fix is taking longer and some cars had to be worked on more than once.
Volkswagen may have further diesel-related costs that aren't directly related to the cheating scandal. Facing threats of a ban on diesel cars by German cities under pressure to reduce pollution, Volkswagen and other car makers are offering up to EUR10,000 in discounts on a new car for customers who trade in old diesel vehicles.
Analysts estimate that diesel scrappage in Germany could cost Volkswagen up to another EUR1.2 billion. Volkswagen has said that it doesn't expect the costs of the program to affect earnings.
News of the additional costs followed the arrest this week of Volkswagen's former engine chief, Wolfgang Hatz, a high-ranking executive who had a close working relationship with Chief Executive Matthias Müller and his predecessor former CEO Martin Winterkorn.
Write to William Boston at william.boston@wsj.com and Max Bernhard at Max.Bernhard@dowjones.com
(END) Dow Jones Newswires
September 29, 2017 10:33 ET (14:33 GMT)