Volkswagen recently announced that is has been tampering with software to make its vehicles show lower emission tests on official tests that on the roads. U.S regulators have stated that approximately 500,000 cars are affected on the North American markets. However, the problem appears to be even bigger than that, according to Volkswagen itself: 11 million vehicles could be affected worldwide.
As a result of the announcement, the share prices have been decimated instantly, falling over 20% over the past two days. The company has set aside reserves of $7.3 billion dollars to cover the costs of recalls. The biggest uncertainty with this situation is the actual amount of costs that Volkswagen will have to pay- the amount could be higher than $7.3, in worst case scenarios.
Other adverse factors for Volkswagen are lawsuits by shareholders and car buyers and loss of reputation.
With all that being said, I’m closely watching how the situation unfolds and believe that it could be a buying opportunity, especially considering how the market often overreacts to negative news.