In mid-2015 Volkswagen AG, the world’s largest automaker, was an image of environmental credibility and innovation in an industry more commonly associated with complacency and pollution. Volkswagen (VW) offered a range of award winning diesel vehicles under the VW, Porsche, and Audi brands in the U.S., and other a few other nameplates (like Skoda and Seat) in Europe. VW-made diesel vehicles were powerful and clean, and many would drive nearly 50 miles on a gallon of fuel. Engineers at rival automakers wondered aloud how VW balanced performance, price, and environmental impact.
In September 2015 the United States Environmental Protection Agency (EPA) answered their question: VW cheated, and secretly sold diesel vehicles with software that obscured the fact that they emitted Nitrogen Oxides (NOx) and other climate change-related gases at levels over 40 times what the EPA permitted . Depending on who you ask VW’s unprecedented deception was driven by the unexpected failure of proprietary emissions technology or a draconian, anti-fear corporate culture that would make a fantastic LEAD case.
Either way, over 11 million VW vehicles sold between 2009 and 2016 were affected, including 8 million in Europe and nearly 3 million in Germany alone . Senior leaders expectedly resigned across the VW AG empire, including the VW AG CEO Martin Winkerhorn. The EPA took VW to a U.S. federal court, which returned a $14.7 billion settlement in late October 2016 . And perhaps most painful to VW, many people stopped buying VWs. Sales of VWs fell nearly nine percent in a single month in January 2016  and have yet to fully recover.
Indeed, sales of diesel vehicles (VW and otherwise) across Europe appear impacted by VW’s “Dieselgate” scandal, with diesel sales falling by up to 12% in some countries . Many European consumers now question the ethics of diesel ownership in an era of climate change awareness. For their part, European governments question the wisdom of fuel tax structures that have long incentivized the purchase of what we now recognize to be dirty (albeit economical) diesel vehicles.
Indeed, in the thirteen months since Dieselgate broke leaders in VW’s homeland of Germany have leaned ahead of their regional counterparts in pushing policies intended to change how the vehicles on their roads affect climate change. In April of 2016 the government of German Chancellor Angela Merkel struck a deal to provide $1.4 billion worth of incentives to electric car buyers . This works out to about 4000 euros per electric car buyer, and is a significant (if still symbolic) step in a country where only 30,000 of the 3 million vehicles bought each year are electric. Even more dramatically, in October 2016 the German Bundesrat (a sort of legislative body akin to the U.S. Senate) resolved to ban the sale of internal combustion (i.e. gasoline and diesel) engines in Germany by 2030 . A political stunt? Probably, but also a likely leading indicator of political sentiment.
So where does this leave VW, with its gutted creditability and increasingly unmarketable diesel product line? Working on electric cars, actually. In the year since the scandal broke – as European governments and consumers reacted to VW’s cheating by turning away from diesel vehicles and towards electric vehicles – VW made its own pivot towards electricity. In mid-October 2016 at the Paris Auto Show VW unveiled an ambitious plan to launch 30 new electric vehicle models (ranging from a compact SUV to a luxury sedan) and sell one million electric vehicles per year by 2025 .
Analysts decried VWs plan as a reactionary attempt to restore its tarnished public image (because it probably was). However, if VW can execute its new electric vehicle plan then it may adapt more effectively than its competitors to the same aggressive, climate change-focused legislation that its own filthy diesels prompted.
Even if VW is unable to meet its electric vehicle model launch and sales goals the company could leverage tremendous resources and capacity (five million vehicles sold globally per year) to expand the electric vehicle market in Europe and elsewhere. Perhaps the goals set at the Paris Auto Show should be considered less of a concrete plan and more of a signal that a legendarily dirty automaker intends to make more money as one of the industry’s cleanest in the years ahead. [726 words]
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