Volkswagen not in the Clear Yet

No-moat-rated

However, other matters could still be litigated, including stock market manipulation by a lack of timely public notification of the diesel issue, noncompliance of diesel emission regulations, and consumer agencies seeking relief similar to remuneration received by U.S. consumers who had the option to have Volkswagen buy back the vehicle or receive $5,100 cash plus free repair. The fine is also unrelated to the current ongoing investigation regarding diesel equipment collusion among all three German automakers.

We have maintained our EUR 230 fair value estimate as the EUR 1.0 billion fine had less than a 1% impact. Our fair value estimate continues to include a EUR 20 billion reduction to our enterprise value due to the remaining potential European litigation. In addition, we assume margin contraction relative to Volkswagen's 10-year historical performance to reflect higher spending for industry disruptive technologies including mobility services, autonomy, and electrification. We contract margin through our entire five-year forecast from 7.2% in 2018 (versus 8.7% in 2017) to a normalized sustainable midcycle of 5.1%. Our midcycle assumption represents a 170-basis point reduction from the 10-year median. Even so, the 4-star-rated shares of Volkswagen trade a compelling 29% discount to our EUR 230 fair value estimate.

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