Volkswagen is set to pay more than $15 billion (14 billion euros) to settle U.S. lawsuits and compensate drivers there for its rigging of diesel-emissions tests.
Even though that's about $5 billion above what the market anticipated, the shares rose more than 3 percent on Tuesday. That's doubtless because the deal will give investors at least some certainty about the scale of VW's liabilities. But even after taking that into account, the automaker's valuation still looks stretched.
On the eve of the scandal nine months ago, VW's market value was 76.7 billion euros ($85 billion). Today, that's dropped 22 percent to 59.6 billion euros. Adjusted for a 4.5 percent decline in Germany's benchmark Dax index since mid-September, VW's scandal has erased about 14 billion euros of shareholder value.
That sounds a lot -- but it isn't, given the size of the U.S. settlement. On the contrary, investors are pricing in a best-case scenario with little room for further nasty surprises.
VW has set aside 16.2 billion euros for fines and other costs linked to the diesel scandal. The price of recalling U.S. vehicles will probably be tax deductible as a business expense, so the cash hit is likely to be much less than the $15 billion headline figure. But that still doesn't leave much room for many large penalties or compensation claims in other jurisdictions.
Not surprisingly, VW insists that the U.S. shouldn't serve as a model for other countries. Seeing as the vast majority of the 11 million faulty diesel vehicles were sold outside the U.S., the automakers' investors are going to have to hope it doesn't.
VW also faces lawsuits alleging it was too slow to warn investors of the Environmental Protection Agency's investigation. So it's not outlandish to think the final cost of the diesel scandal could yet exceed 16.2 billion euros.
It's also difficult to argue that VW is a fundamentally different company today that merits a higher valuation.
It's true that sales have fared much better than expected in the wake of the scandal. They rose 0.8 percent in the first five months of this year compared with the year-earlier period. But in the wake of Brexit -- Volkswagen is the market leader in the U.K. -- it's unlikely to be a banner year for car sales.
With its diesel-engine technology tarnished, VW has belatedly recognized it needs to invest heavily in electric vehicles. But its target to sell as many as 3 million a year by 2025 will require huge investment.
Finally, while VW's executive board has been overhauled and the automaker has promised to improve controls, the company's deep-seated corporate governance problems haven't been solved: power remains largely with the labor unions, the Porsche/Piech families and the State of Lower Saxony whose interests are frequently mis-aligned with those of outside shareholders.
VW stock trades on 5.9 times estimated 2016 earnings, whereas BMW and Daimler are on 6.9 and 6.8 times respectively. As VW prepares to cut a check for $15 billion, investors need to ponder whether that discount is sufficient.
--With assistance from Gadfly's Chris Hughes
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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