When a global corporation gets things wrong, the repercussions spread far and wide. A contrarian might look to see if the damage to a company’s share price is over cooked leading to a buying opportunity. In Volkswagen’s case however, the repercussions of their actions could suppress their share price for years to come.
Even more significantly, the scandal could have a long term fundamental impact on the market for diesel engine cars increasing demand for petrol, hybrid and electric vehicles. Focusing on electric cars, I have been following the Tesla Motors story closely this year and particularly its investment in a lithium battery plant in Nevada. With the growth in the electric vehicles market expected to reach US$271.67 billion in terms of revenue by 2019 from just US$83.54 billion in 2012. The high cost of running conventional vehicles and the eco-friendliness of electric vehicles is shifting consumers more and more away from petrol and diesel. The Volkswagen scandal will only increase this trend.
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