Volkswagen's Cheating May Have Been Worse Than We Thought

By John

A day after denying EPA charges that VW used emissions-cheating software on 3.0 liter diesel engines like this one, VW admitted to new "irregularities." Image source: Audi/Volkswagen Group.

Volkswagen said on Tuesday that an internal probe has uncovered an additional 800,000 vehicles that may have emissions "irregularities," adding to the roughly 11 million vehicles already implicated in a wide-ranging emissions cheating scandal.

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VW said specifically that the "irregularities" may pertain to carbon-dioxide emissions. It also said that "the majority of the vehicles concerned have diesel engines" [emphasis added], suggesting for the first time that the company's emissions cheating might also affect its gasoline-powered models.

But VW was denying the EPA's new allegations just yesterday! The admission comes a day after the U.S. Environmental Protection Agency (EPA) added to its charges against VW under the Clean Air Act, alleging that VW, Audi, and Porsche models equipped with a 3.0 liter V6 version of the company's "TDI" diesel engine may have software that produces false readings on emissions tests. But it's not yet clear whether VW's statement on Tuesday relates to those engines -- or to something else entirely.

That was the first time the premium Porsche brand had been brought into the growing scandal, and the first time Audi's bread-and-butter SUVs had been implicated, too. Porsche and Audi generate the bulk of VW's profits. VW denied the EPA's additional allegations on Monday and said it would work with the EPA to "clarify" things. The strong hint from VW was that the EPA misunderstood something.

Still, the EPA said its testing showed that the vehicles emitted nitrogen oxides at up to 9 times the legal limit in normal driving. Nitrogen oxides are among the compounds that cause smog. Emissions are sharply limited in the U.S. under the Clean Air Act, but limits in Europe are less strict.

Is this new statement a big deal?As I write this on Tuesday afternoon, it's hard to say. VW's statement doesn't give a lot of details. It said that about 800,000 vehicles may be affected, and that VW estimates the "economic risks" at "approximately two billion euros."

That makes it sound like just an incremental addition to what we already know, and to the 6.5 billion euro charge VW took against its third-quarter earnings. But it could be a very big deal.

First, VW's Tuesday statement talks about carbon dioxide, not nitrogen oxides. Carbon dioxide is a key greenhouse gas, and the European Union has strict rules around carbon dioxide emissions from vehicles. It's possible to see how a bunch of German engineers might not have taken U.S. emissions laws (focused on nitrogen oxides) all that seriously. But if the company was also implementing software specifically to cheat on tests of carbon dioxide, that's likely to result in serious action from European authorities.

Second, the wording of VW's statement leaves open the possibility that this cheating goes beyond the company's diesel engines. If VW was cheating on tests of its gasoline engines, that could open several additional dimensions to the scandal. One big one: VW has sold almost no diesels in China, but it sells lots of gasoline-powered vehicles in the world's largest new-car market. The Chinese government is getting serious about cracking down on air pollution. If it turns out that VW was cheating on Chinese tests, the consequences could be very severe.

The upshot: Does VW's leadership not know, or is it just not telling?"From the very start, I have pushed hard for the relentless and comprehensive clarification of events," CEO Matthias Mueller said in a statement. "This is a painful process, but it is our only alternative. For us, the only thing that counts is the truth. That is the basis for the fundamental realignment that Volkswagen needs."

That's what he has to say, of course. But in a way, it's astonishing that VW's senior management appears to be discovering this apparently wide-ranging series of activities for the first time. There must have been dozens, perhaps hundreds, of people inside the company who knew that, at minimum, there was something a little weird about the way the company's engines behaved during emissions tests.

It has now been more than six weeks since the EPA first announced its charges against Volkswagen (and at least eight weeks since VW executives first admitted to the existence of the cheating software in conversations with the EPA). And yet we're still learning, in dribs and drabs, the extent of VW's efforts to flaunt emissions regulations in the U.S. and elsewhere.

Is it that VW internal investigators are really having such trouble finding out what happened? Or is this a case where lots of people know what happened, but nobody is willing to talk about it?

As long as those are open questions, I can't see buying VW stock -- no matter how cheap it gets.

The article Volkswagen's Cheating May Have Been Worse Than We Thought originally appeared on

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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