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August 8, 2018

Analysis: VW unlikely to be damaged over EV battery scandal

In this MarketLine analysis, MarketLine research analyst Mohammed Hamza Iqbal says manufacturer VW is likely to emerge unscathed from the cadmium battery scandal that has reached its electric vehicles.

By Brian Cantwell

In this MarketLine analysis, MarketLine research analyst Mohammed Hamza Iqbal says manufacturer VW is likely to emerge unscathed from the cadmium battery scandal that has reached its electric vehicles.

Volkswagen is implicated in another scandal in its electric vehicles (EV’s), although history suggests it will weather the storm.

Around 124,000 electric and hybrid cars manufactured by VW and its numerous subsidiaries, including Audi and Porsche, are going to have to be recalled as the company has admitted to the German authorities that cadmium, a poisonous metal, has been utilized in the manufacturing process of its electric vehicles.

The electric vehicle market is considered significant as many countries commit to climate change agreements.  MarketLine estimates that the global hybrid and electric vehicles market will grow with an anticipated CAGR of 16.6% between 2017 and 2022. VW has a published a goal that 25% of its global sales will be electric vehicles by 2025, so its cadmium announcement is not welcome news.

VW will have to recall cars but strong brand image will ensure there will be no long lasting damage

The cadmium scandal is rather minor with 124,000 cars recalled. In comparison, the company sold 10.7 million vehicles in 2017, and recalled 11 million cars in the 2015 scandal.  It is safe to say therefore that VW will emerge out of yet another scandal with at most a temporary financial hit. In the long run the company’s reputation will ensure its sales will bounce back and continue to grow.

In 2015 for example the company was involved in an emissions scandal which saw it ultimately pay tens of billions of dollars in penalties to authorities and car owners across the globe.  The company’s net income (see below) as such took a hit that year.

However despite this large financial hit, since 2016 its net income has been on a strong rise. VW and its subsidiaries such as Audi and Porsche have such well established brands that they can survive significant scandals.

The Federal Motor Transport Authority of Germany (KBA) announced at the end of July 2018 that it was initiating an investigation which would try to ascertain the validity of these rumors. As a consequence of this VW announced at the beginning of August 2018 that it had found traces of cadmium in its EV’s.

VW’s claims a supplier is responsible, providing components containing cadmium without VW’s knowledge. It remains to be seen whether the KBA will buy this argument

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