Diesel scandals are not over - May 01, 2016

Diesel scandals are not over

As Volkswagen does its best to negotiate with the US authorities to dodge a possible multi-billion dollar fine for cheating on emission tests, new companies get involved in emission scandals of their own. The latest is Mitsubishi which admitted manipulating fuel economy data, but Mercedes has its problems too.

The news is lately about how Volkswagen agreed on a solution with US authorities after having been cheating on emission tests. They will have to fix the affected cars and even pay compensation or offer buy back options for Volkswagen owners. There are 482 thousand cars affected in the matter, and VW Group estimates that the scandal in the US may cost them $19 billion. In Europe they probably won’t face such amounts, but they did have to recall cars there too.

While VW is getting closer to a solution, Mitsubishi got into trouble. A week ago, the Japanese company admitted that they manipulated fuel economy data and 625 thousand cars may be affected. This led the company to lose $1.2 billion from its market value. The scandal is different and smaller than Volkswagen’s, in addition, Mitsubishi came to light with it on their own, which didn’t stop them losing 15% of their value, though.

As we pointed out in October, VW lost 35% of its value in two weeks, leading to an incredible €26 billion loss. Volkswagen’s stocks are hiked since then, but they are still far below the highs of the pre-scandal era.

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Now it’s Mercedes’ turn. US Department of Justice requested Mercedes’ parent, Daimler to look into possible cheatings with diesel engines. All this happened after a class-action lawsuit was filed against the company, saying that BlueTEC engines are clean diesels when it is warm but are dirty when it is cold. The lawsuit also mentions a possible cheat device used during tests.

While traditional car manufacturers are having troubles, innovative companies like Tesla seem to be skyrocketing. Their prices are getting higher, even if we see huge drops in the stocks. Even after a bad period (and disappointing sales), with a new model, the Model 3 namely, they can earn back the trust of investors.

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As we can see from these examples, what was unimaginable some time ago is now reality: even corporations like big car manufacturers can lose great amount of their values virtually in no time. In the meantime, innovative newcomers can attract investors, but they have their risks, like unpredictable changes in stocks. This is an important thing to know when we are investing our money, and makes diversification as important as ever.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instruments. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities also offers Profit Max which has a highly diversified, professionally assembled portfolio.