The VW emissions scandal: The death of diesel and the impact on the auto industry
The cost of reducing emissions
The Volkswagen (VW) emissions scandal has rocked the auto world in recent weeks, and the knock-on effects will be felt all down the supply chain.
We expect all automakers to face higher costs associated with meeting tighter emissions standards under more stringent testing procedures.
NB. NOx is nitrous oxide
However, companies will find it harder to pass these added costs on to customers via higher pricing given the industry’s ‘image problem’ and low fuel prices.
Anecdotal evidence suggests consumers are less likely to pay for fuel efficiency technology when they are not making a significant saving on fuel costs.
We have written in the past about the threat to the auto industry from:
- Autonomous driving
- Structurally declining demand
- A maturing Chinese market
In our view this episode only creates further headwinds to long-term industry profitability.
That said, the broad-based selloff in auto stocks suggests risks are increasingly priced-in.
As investors we see pockets of opportunity where companies with decent short-to-medium term prospects, some even benefiting from this episode, have been oversold.
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