If you’ve got an eye on the automotive market, then you’ve heard all about the latest scandal in which Volkswagen was caught red-handed cheating on emissions tests.
VW even admitted to having installed software into the cars’ computers to thwart electronic emissions tests for its diesel-fuel cars.
The software affected about 11 million vehicles worldwide, approximately 500,000 of which were located within the United States. And yet even that small portion of vehicles equated to roughly 19 million cars’ worth of extra nitrogen oxide (NOx) emissions between 2009 and 2015.
But VW is one of the world’s largest carmakers, even fighting neck-and-neck with Toyota for the top spot this year…
So I can’t help but ask, “Shouldn’t someone have noticed the huge discrepancy between the estimated emissions levels of these ‘clean’ diesel vehicles and actual NOx smog levels?”
The irony is that someone actually did…
First: The Setup
Truth is, European officials have suspected that something is off with VW’s diesel cars for some time now. Countries like France, with massive “clean” diesel vehicle markets, have found their cities drowning in smog anyway.
The problem is that diesel fuel passes most emissions tests — when they’re testing for carbon dioxide (CO2). Diesel doesn’t emit much CO2, but it does emit plenty of NOx.
Until recently, European governments haven’t regulated NOx emissions very much, preferring to focus on CO2 and its relation to global warming.
In fact, the Euro 6 Standard, which reduces previously allowed levels of NOx from 180 milligrams per kilometer to just 80 mg/km, only came into effect this month.
Bernstein Research automotive industry analyst Max Warburton notes, “Diesel has been under growing pressure in recent years, as regulators recognize that it is still not as clean as [unleaded] gasoline, despite meeting official tests.”
It seems those tests may have been inaccurate anyway.
Now, you have to understand that diesel vehicles have been a popular choice in Europe for many years. Rather than bank on gas-electric hybrids, consumers showed more interest in VW’s “clean” version of diesel gas cars.
Unfortunately for the company, it was that interest that started this mess.
Next Up: The Sting
Bloomberg tells the ironic story of Peter Mock, the director of a European clean-air group, and his plan to show Europeans that diesel cars like VW’s were indeed running cleanly.
When European tests of several of VW’s cars showed discrepancies in the results, Mock decided to team up with John German, U.S. senior fellow of The International Council on Clean Transportation, for a new round of tests.
They planned to test the U.S. versions of the same VW cars, figuring that if they could pass the strict U.S. emissions regulations, it would be proof enough for the market.
What they found was that the cars spewed NOx at levels as much as 35 times the U.S. standards.
Best laid plans, as they say…
Companies on Trial
As I mentioned, the announcement of these findings dropped VW’s stock by 20%, slashing one-third of its value in a matter of days.
And make no mistake: VW wasn’t the only company affected. A car is a collaborative effort between several different sources, and those associated with VW felt the pain as well.
The company’s German parts supplier, Continental, saw its stock drop 4% with the news. Continental’s French rival Valeo lost nearly 5% in stock price. Daimler and Peugeot, two of the largest European car manufacturers after VW, saw their stocks drop 6% and 7.2% each.
Now that this information is out in the open, similar losses are sure to be felt all through the diesel vehicle market.
European emissions tests, as well as U.S. tests of foreign cars, are sure to become more stringent. This means other car companies with high diesel-vehicle reliance such as BMW, Audi, and Mercedes-Benz will be highly scrutinized, and more lawsuits may be on the way.
Diesel-fuel car companies now have a choice to make: either adjust their diesel cars to fit the new, likely stricter regulations or focus more on making hybrid and electric vehicles instead.
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Finally: The Verdict
Look, it’s more than likely that most car manufacturers will choose the latter. It’s just more cost-effective to invest in technology that is inherently cleaner than to commit to changing the makeup of dirtier cars.
This trend has actually already been seen in Japan. The country began phasing out diesel cars in favor of hybrid and electric vehicles, and as of 2013, it had the largest percentage in the world of these cleaner cars — 21%.
The runners up were still quite a bit behind: Norway had 12.8% hybrid and EVs, and the Netherlands had 11.3%.
Germany, despite its recent reputation as a clean energy leader, only had 1% in its vehicle fleet.
What’s more, the sudden drop in diesel-fuel confidence couldn’t have come at a worse time for the market. With oil prices at six-year lows and supplies in a glut, refineries that produce diesel and companies that sell it are already being hit hard.
So the bottom line here is this:
The Volkswagen scandal has helped the electric vehicle market.
Of course, both automakers and consumers now have more reason than ever to focus on cleaner electric vehicles — especially with the U.S. EV competition heating up and Tesla’s Gigafactory expected to cut lithium car battery prices in half. Diesel vehicles don’t have a chance.
When asked plainly if this development may mean the end of light diesel vehicles, Mr. Warburton answered simply, “Yes, it probably does.”
The real question you — or any individual investor, for that matter — should be asking yourself right now, however, is whether there’s still a chance to capitalize on this situation.
The answer, of course, is a resounding yes!
In fact, my readers have been quietly taking advantage of a revolution that’s happening in the energy sector. It’s one of the few commodities that’s actually trending higher — and it still shows no signs of slowing down in the decades to come.
It’s precisely the reason I’m on the cusp of releasing a new investment report on the matter to my readers. Inside, I highlight three different ways that investors can get in on the ground floor using three distinct investments.
I want you to have the same opportunity as them, which is why I’ll give you a chance to have a sneak peek at this report as soon as the I’s are dotted and the T’s are crossed.
Stay tuned.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
