Inside Financial Markets

Volkswagon could face billions in Car Tax Repayments over CO2 Scandal

Incorrect carbon emissions data could mean thousands of cars benefited from unduly low vehicle excise duty

Volkswagen could have to repay billions of pounds of tax credits to European governments after finding “irregularities” in the levels of carbon dioxide emitted by its cars. Shares in the embattled carmaker slumped by 10% on Wednesday, wiping €5bn (£3.5bn) off the value of the company, as analysts warned that the consequences of rigging CO2 and fuel consumption tests could be worse than the initial scandal around diesel emissions tests.

VW has now lost €32.4bn, or 40% of its value, since admitting in September that it installed defeat devices into 11m diesel vehicles. The scandal is dragging down sales of new VW cars, according to industry figures due to be released in Britain on Thursday. Sales data for October from the Society of Motor Manufacturers and Traders is expected to show that VW sales fell by more than 8% year-on-year, with Seat and Škoda also down.

The latest admission about CO2 tests dramatically widens the scandal that VOLKSWAGEN is facing.

Germany, Britain and other countries set vehicle tax rates based on their CO2 emissions. This means that if VW artificially lowered CO2 emissions during testing then its vehicles will have contributed far less in tax than they should have.

VW has said that at least 800,000 cars are affected by the CO2 discovery and estimated the “economic risks” at €2bn. This works out at €2,500 per car, far more than the €609 per car put aside for the cost of the 11m cars involved in the diesel emissions scandal, which was €6.7bn in total.

Analysts said these costs were likely to relate to repaying tax credits in Europe rather than customer compensation.

Stuart Pearson, analyst at stockbroker BNP Paribas Exane, said: “VW will likely need to repay CO2-related tax breaks etc to various national governments that its vehicles artificially ‘earned’. This gives governments a simple mechanism by which to ‘fine’ VW, without penalising the customer.”

Alexander Dobrindt, the German transport minister, gave a clear indication that VW would be forced to repay tax. He said a quarter of the 800,000 vehicles are in Germany.

Dobrindt said: “If these vehicles emit more CO2, over and above the respective limit, that makes a new calculation necessary.

“I assume that a solution will be found that doesn’t burden VW customers. I think that VW clearly has a duty and a responsibility to ensure that, regarding these questions, customers face neither extra costs nor effort.

“If they want to win back trust, they must first ensure that the damage is remedied and the customers don’t get stuck with the problem.”

Dobrindt said that Germany will now retest the CO2 levels of all VW models.

The British government said it was taking the situation “extremely seriously”. A Department for Transport spokesman said: “We are pressing VW to provide urgent clarity on the situation. The government takes the unacceptable actions of Volkswagen extremely seriously.

“This development underlines the importance of the government’s ongoing investigation to establish the extent to which defeat devices have been used.”

VW could also face compensation claims from motorists over the misstatement of their vehicle’s fuel economy. According to BNP Paribas, the cost of compensation to governments and customers could reach €4bn, on top of the estimated €12bn cost of rigging nitrogen oxide tests. UBS said the total costs of the scandal, including legal claims, could reach €35bn.

The discovery about the irregularities in CO2 data emerged from VW’s investigation into the diesel emissions scandal. This found that figures for CO2 and fuel consumption were set too low during CO2tests.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

The Canadian Securities Institute


CSI is part of Moody's Analytics Learning Solutions, which offers educational programs and credentials throughout the world.

Email Newsletter

Subscribe to receive inspiration, news, and ideas in your inbox.

Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)