# Volkswagen: a hidden emissions cheat that cost more than €31bn and pushed a carmaker towards electric

Source: https://sarang.pro/volkswagen-dieselgate/
Author: Sarang | Published: 21 October 2026

## The situation

On Friday 18 September 2015 the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) sent Volkswagen AG a notice of violation under the Clean Air Act. The notice said that four-cylinder diesel cars sold under the Volkswagen and Audi badges since model year 2009 carried software that could recognise when the car was on an emissions test. During the test the car ran its full nitrogen oxide (NOx) controls. On the road it did not, and the EPA said the cars then emitted NOx at up to 40 times the US standard. The models named were the Jetta, Jetta SportWagen, Beetle, Golf, Golf SportWagen, Passat and Audi A3. Regulators called the software a "defeat device". Cynthia Giles, the EPA's head of enforcement, said that using one "is illegal and a threat to public health".

Reuters reported the same day that about 482,000 cars were involved and that the Clean Air Act allowed civil penalties of up to $37,500 a vehicle, which put the theoretical maximum at about $18bn. The cars were not yet subject to a recall, and Volkswagen's US arm said only that it was co-operating.

The company that received the notice was, by some measures, the largest carmaker in the world. In the first half of 2015 Volkswagen Group had sold more vehicles than Toyota. Its chief executive, Martin Winterkorn, had made diesel central to the group's growth in the United States, where Volkswagen and Audi together accounted for more than three-quarters of diesel cars and SUVs sold in 2012. The group's own strategy, called Strategy 2018, aimed to sell more than 10 million vehicles a year and earn a return on sales before tax of at least 8%.

The question facing Winterkorn and the supervisory board over the following weekend was how much to say, and how quickly. The notice covered American cars. The same family of engines was fitted to cars sold in Europe and elsewhere. Every answer they gave would be tested by regulators, prosecutors, car owners and shareholders in many countries, each with separate legal routes to a remedy.

## Background

Volkswagen had grown from the Beetle and the Golf into a group that by 2015 sold cars under a dozen brands, including Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley, Lamborghini and Bugatti, along with trucks under MAN and Scania. In 2014 it had earned a profit of €10.9bn, according to figures later quoted alongside its 2015 results.

Its ownership was unusual for a listed company. At the end of 2015, Porsche Automobil Holding SE, controlled by the Porsche and Piëch families, held 52.2% of the voting rights. The state of Lower Saxony held 20.0% and Qatar Holding 17.0%. Other shareholders held 10.8%. Under German co-determination rules, employee representatives sat on the supervisory board alongside shareholder representatives. Critics of the company's governance later pointed to this concentration of power among a small group of insiders, although the company argued that its structure had given it long-term stability.

The group made most of its money by selling cars through dealers, financing them through its own bank and leasing arms, and from its joint ventures in China, whose profits it booked below the operating line. Diesel mattered to the model in two ways. In Europe, diesel cars were about half of all new car registrations in Western Europe; the industry body ACEA reported a diesel share of 49.5% in 2016, about two percentage points lower than the year before. Diesel engines also gave carmakers a way to meet carbon dioxide targets, because they burn less fuel per kilometre than petrol engines. In the United States, by contrast, diesel was a niche. Volkswagen marketed its TDI engines there as "clean diesel" and passed 100,000 US diesel sales in a single year for the first time in 2013.

The engineering problem was that diesel engines produce more NOx than petrol engines, and US limits on NOx were much stricter than Europe's at the time. Meeting them usually meant fitting either a urea injection system or a lean NOx trap, both of which add cost and can affect fuel economy. In December 2015 the group's chairman, Hans Dieter Pötsch, told a press conference in Wolfsburg that the decision to push diesel cars into the American market dated to 2005, before engineers had found a way to meet the US limits within the time and budget available. The software, he said, was the result.

## The industry

The global car industry in 2015 was dominated by a handful of very large groups. Toyota sold 10.15 million vehicles that year, Volkswagen 9.93 million and General Motors 9.8 million. Scale mattered because development costs for engines, platforms and software are largely fixed, so spreading them across more cars lowers the cost of each one. That pressure helps explain why Volkswagen set itself a volume target and why it was reluctant to design a separate, more expensive engine for a US diesel market that was small.

Rivalry was intense in every major region, and margins in mass-market cars were thin. The Volkswagen brand itself earned an operating margin of 2.0% in 2015 before special items, according to the group's annual report. Buyers had choice and could switch brands. Suppliers of key systems, such as engine control electronics, had real technical power. The threat of substitutes was rising slowly: battery electric cars were a tiny share of sales, but Tesla had shown that they could be desirable, and regulators in Europe, China and California were pushing carmakers towards lower emissions.

Regulation shaped the industry more than almost any other force. Emissions were measured in laboratory test cycles that were short, predictable and run at mild temperatures. In Europe, independent researchers had warned for years that real-world NOx emissions from diesel cars were far above test results. In the United States, testing was stricter but still relied mainly on the laboratory. That gap between laboratory and road created both an incentive and an opportunity for a carmaker to tune an engine for the test.

The gap was found by a small group of outsiders. In 2013 the International Council on Clean Transportation (ICCT), a non-profit research group, contracted West Virginia University's Center for Alternative Fuels, Engines and Emissions to test diesel cars on the road with portable equipment. The aim was to show that US diesels were cleaner than European ones. Instead, the ICCT reported that a Volkswagen Jetta emitted NOx at 15 to 35 times the US standard on the road, and a Passat at 5 to 20 times. A BMW X5 tested at the same time was generally at or below the standard. The ICCT passed its findings to CARB and the EPA.

What happened over the following year is set out in US court papers. According to the indictment later brought against Winterkorn, a memo dated 22 May 2014 warned him that authorities might investigate whether the cars contained software that recognised a test. On 27 July 2015, at what prosecutors called a "damage table" meeting in Wolfsburg, he was allegedly shown how the company was deceiving US regulators and chose not to order disclosure. On 19 August 2015 a Volkswagen employee disclosed the software in answer to a direct question from CARB, and on 3 September the company formally admitted to regulators that its cars contained a defeat device. Winterkorn has denied wrongdoing and has not been tried in the United States.

Exhibit 1: The three largest carmakers by vehicle sales, 2015

GroupVehicles sold, 2015Note

Toyota10.15 millionRemained world number one for the year
Volkswagen Group9.93 millionAhead of Toyota in the first half, behind after the scandal broke
General Motors9.8 million

Source: Associated Press via Fox News, January 2016; Volkswagen 2015 results.

## The decision

By the weekend of 19 and 20 September 2015 the board faced several linked choices, and the public record shows what was decided rather than the debate behind closed doors. The options can still be set out from what was known.

### How much to disclose

The narrow route was to deal with the US notice on its own terms: about half a million cars, one regulator, a known maximum penalty. Its advantage was that it limited the immediate damage. Its weakness was that the same engine family, known internally as the EA189, was in cars around the world. If regulators in Europe or Asia found the software themselves, the company would face a second scandal, this time about concealment. The broad route was to announce the global scale at once. That would hit the share price harder and invite claims everywhere, but it would show the company was not hiding anything further.

### Who should lead

Winterkorn had run the group for several years and was closely identified with its growth strategy. Keeping him offered continuity at a time of crisis. Removing him signalled a break with the past, but it also risked looking like an admission that the problem went to the top, which carried legal consequences.

### Fight or settle in the United States

US law allowed regulators, the Department of Justice, state attorneys general and private class actions to pursue the company at once. Fighting would delay payments and might reduce them, but it would keep the cars on the road unrepaired and the story in the news for years. Settling quickly would be expensive but would allow the company to set a ceiling on its US liability and move on.

### What to do about diesel

The longest-term choice was strategic. Volkswagen could try to restore trust in diesel, which still made up about half the Western European market. Or it could redirect capital towards battery electric cars, where it had a few converted models, such as the e-Golf, but no dedicated platform.

## What they did

### Disclosure and leadership

Volkswagen chose broad disclosure. On Tuesday 22 September 2015 it said that software of the kind identified by the EPA was present in about 11 million diesel vehicles worldwide, cut its profit guidance and set aside €6.5bn (about $7.3bn) to cover the expected cost. The shares had already fallen 17% on Monday 21 September and fell a further 17.6% on the Tuesday. CNN reported that about €25bn of market value, roughly a third of the company, had gone in two days.

On 23 September Winterkorn resigned. "As CEO I accept responsibility for the irregularities that have been found in diesel engines," he said, adding that he was "not aware of any wrong doing on my part". The deputy chairman, Berthold Huber, said Winterkorn had not known of the manipulation. The supervisory board named Matthias Müller as chief executive within days.

In December 2015 Pötsch, now chairman of the supervisory board, presented the company's first account of what had gone wrong. An internal audit had found three causes: misconduct by individual employees, weaknesses in some processes, and a mindset in parts of the company that tolerated breaking the rules. "It proves not to have been a one-time error, but rather a chain of errors that were allowed to happen," he said. Müller told the same audience that the company did not need "yes-men".

### The cost lands

The first provision proved far too low. When Volkswagen reported its 2015 results in April 2016, it booked €16.2bn of diesel-related charges in its operating result: €7.8bn for recalls, repairs and buybacks and €7.0bn for legal risks, with the rest for other items. The group made an operating loss of €4.1bn on revenue of €213.3bn. Press reports at the time gave the net loss as €1.6bn and described it as the group's first annual loss since 1993; Volkswagen's own figures in the following year's release give the 2015 loss after tax as €1.36bn, a different measure of the same result. The dividend on ordinary shares was cut from €4.80 to €0.11. The business underneath was still generating cash: automotive net liquidity rose to €24.5bn.

### Settling in the United States

Volkswagen chose to settle in the US rather than fight. The settlements came in stages:

- June 2016: a $14.7bn settlement covering the cars with 2.0-litre engines. About $10bn went to buying back or modifying cars, with owners receiving at least $5,100 and in some cases up to $10,000. A further $2.7bn went into an environmental trust to offset excess NOx, and the company agreed to invest $2bn over ten years in zero-emission vehicle infrastructure. It had to buy back, fix or scrap at least 85% of the affected cars.

- December 2016: a $1bn regulatory settlement for about 80,000 cars with 3.0-litre engines, under which about 20,000 would be bought back and 60,000 fixed, plus a $225m environmental trust. A separate agreement to compensate those owners, worth about $1.22bn, was approved by the court in 2017.

- January 2017: Volkswagen AG pleaded guilty to three felony counts, including conspiracy and obstruction of justice. It agreed to a $2.8bn criminal penalty and $1.5bn in civil penalties, three years of probation and an independent compliance monitor. The Justice Department put the number of US diesel cars involved at about 590,000.

The same day, the Justice Department charged six Volkswagen executives and employees, all German. Separately, the engineer James Liang was sentenced to 40 months in prison in August 2017. Oliver Schmidt, who had been the company's US emissions compliance manager from 2012 to early 2015 and was arrested in Miami in January 2017, was sentenced in December 2017 to seven years and fined $400,000. In May 2018 prosecutors unsealed an indictment of Winterkorn on one count of conspiracy and three of wire fraud. The attorney general, Jeff Sessions, said the alleged scheme "went all the way to the top of the company".

### Settling in Germany and Europe

European owners were treated differently. Cars in Europe were recalled for repair, but there was no US-style buyback scheme. Volkswagen argued that European law and the condition of European cars were different. Consumer groups disagreed. The penalties came from prosecutors and courts rather than from a negotiated national settlement:

- June 2018: Braunschweig prosecutors issued a €1bn administrative fine against Volkswagen AG for supervisory failures, made up of the €5m legal maximum and €995m in disgorged economic benefit. The company accepted it.

- 2018 and 2019: Munich prosecutors fined Audi €800m and Stuttgart prosecutors fined Porsche €535m.

- February 2020: Volkswagen settled a model case brought by the German consumer federation for €830m. About 260,000 owners could receive between €1,350 and €6,257 each.

- May 2020: the Federal Court of Justice ruled that owners could demand a refund of the purchase price, less an allowance for use. The presiding judge said the company's conduct "qualified as immoral" and that the defeat devices reflected a "strategic decision".

### Strategy after the crisis

The company's strategic answer came in two steps. In June 2016 Müller launched "Together: Strategy 2025", which promised 30 new battery electric models within ten years and sales of two to three million electric vehicles a year by 2025. In September 2017 he went further with Roadmap E: more than 80 new electrified models by 2025, about 50 fully electric and 30 plug-in hybrids, an electrified version of each of the group's roughly 300 models by 2030, and a battery tender worth more than €50bn. "We have got the message and we will deliver," Müller said. The group said up to three million fully electric cars a year, about one in four new vehicles, could be sold by 2025, "depending on market development".

The engineering basis for this was a dedicated electric platform, the Modular Electric Drive Toolkit (MEB). Series production of the first MEB car, the ID.3, began at Zwickau on 4 November 2019 after a €1.2bn conversion of the plant. At that point the group said it planned to put about 22 million electric vehicles on the road by 2028.

Not everything was disclosed. Volkswagen had hired the US law firm Jones Day to investigate the scandal and had said it would share the findings. At the annual meeting in May 2017 Pötsch said that "there is no written concluding report by Jones Day and there will not be one", because the findings had been folded into the US statement of facts. Christian Strenger, a fund manager at DWS, called that explanation "completely insufficient and almost insulting" to shareholders.

## What happened

The financial effect can be followed in the group's annual reports. After the loss of 2015, operating profit recovered quickly, but diesel charges kept coming for four more years. Revenue grew in every year from 2015 to 2019, and by 2017 the group was reporting record earnings despite the scandal. Deliveries rose to 10.3 million in 2016 and 10.7 million in 2017.

Exhibit 2: Volkswagen Group results and diesel charges, 2015 to 2019 (€bn)

YearSales revenueOperating resultDiesel special itemsProfit after taxDeliveries (m)

2015213.3-4.1-16.2-1.49.93
2016217.37.1-6.45.410.30
2017230.713.8-3.211.610.74
2018235.813.9-3.212.2n/a
2019252.617.0-2.314.0n/a

Source: Volkswagen Group annual reports and results releases for 2016, 2017 and 2019. The 2015 after-tax figure is the restated figure in the 2016 release; press reports in April 2016 gave €1.6bn. In 2016 total special items were €7.5bn, of which €6.4bn related to diesel.

In March 2020 the chief financial officer, Frank Witter, put the total cost of fines, settlements and related items at €31.3bn (about $34.7bn), and said the company expected further charges of €2.9bn in 2020 and €1.2bn in 2021. By May 2025 Euronews reported that the group had paid more than €33bn in fines and compensation to owners. The first-week provision of €6.5bn was therefore about a fifth of the eventual bill.

The legal process in Germany was much slower than in the US. A first criminal trial in Braunschweig began in September 2021. Winterkorn was due to be in the dock, but his case was separated shortly before the trial began after his lawyers said he was too ill to appear. On 26 May 2025, after nearly four years, the court convicted four former managers of fraud. The former head of diesel development was sentenced to four and a half years in prison and the former head of drivetrain electronics to two years and seven months. The other two received suspended sentences of 15 and 10 months. The verdicts could be appealed.

The move to electric cars happened, but more slowly than the 2017 promise implied. In 2024 the group delivered 9.03 million vehicles, of which 744,794 were fully electric. That was 8.3% of deliveries, the same share as in 2023, and electric volumes fell 3.4%. In 2025 electric deliveries rose 32% to about 983,100, or 10.9% of 8.98 million vehicles. Set against the Roadmap E ambition of up to three million fully electric vehicles a year by 2025, the outcome was about a third of the upper target.

Exhibit 3: The cost of the scandal, by main item

DateItemAmount

Sep 2015First provision€6.5bn (about $7.3bn)
Jun 2016US settlement, 2.0-litre cars$14.7bn
Dec 2016US regulatory settlement, 3.0-litre cars$1.0bn plus $225m trust
Jan 2017US criminal and civil penalties$4.3bn
Jun 2018German administrative fine, Volkswagen AG€1.0bn
2018 to 2019German fines, Audi and Porsche€800m and €535m
Feb 2020German consumer model case settlement€830m
May 2022Settlement with about 91,000 claimants in England and Wales£193m
Mar 2020Total reported by Volkswagen to date€31.3bn

Sources: Volkswagen ad hoc release, June 2018; California Attorney General, June 2016; US Department of Justice, January 2017; Reuters via Business Insurance, December 2016 and March 2020; CNBC, May 2019; BEUC, February 2020; Top Gear, May 2022.

## Other views

### Regulators and prosecutors

US authorities treated the case as deliberate corporate fraud. Attorney General Loretta Lynch called the attempt to dodge emissions standards an egregious violation of US law, and the Justice Department's 2018 indictment alleged that the scheme was known at board level. German prosecutors took a similar view in their charges, but German courts moved case by case. The Federal Court of Justice's 2020 language, describing the conduct as immoral and strategic, was a judicial finding against the company's early line that a small group of engineers had acted alone.

### Consumer groups

BEUC, the European consumer organisation, argued that European owners had been treated worse than American ones. When the German settlement was reached in 2020, its director general, Monique Goyens, said that "for years, Volkswagen refused to compensate Europeans for the Dieselgate scandal", and that owners outside Germany were still excluded. Volkswagen's position was that the cars in Europe had been repaired and that European law did not provide for US-style compensation.

### Investors

Institutional investors filed claims in German courts, arguing that the company had told the market too late. The decision not to publish a Jones Day report drew sharp criticism, from DWS's Strenger and from Hermes EOS, which had argued that publication would help the company move on. The company said US legal restrictions prevented it.

### Public health researchers

Scientists at MIT, Harvard and Hasselt University estimated the human cost. An earlier MIT study had put premature deaths in the US from the excess emissions of the 482,000 affected US cars at about 60. A 2017 study in Environmental Research Letters estimated that excess emissions from 2.6 million affected cars sold in Germany caused about 1,200 premature deaths across Europe between 2008 and 2015, and that fixing the cars by the end of 2017 would avoid about 2,600 more. These are model-based estimates with wide uncertainty, and the company did not accept them.

### Courts in other countries

Not every court has seen the wider diesel question in the same way. In July 2026 the High Court in London gave judgment in the first liability trial of the Pan-NOx group litigation, brought by about 1.6 million claimants against several manufacturers including Volkswagen, Mercedes-Benz, Ford, Peugeot-Citroën and Renault-Nissan. According to the court's summary, the judge rejected most of the main allegations against the vehicles examined, while making adverse findings on a Mercedes device and on a strategy in some Peugeot-Citroën cars, and held that a defeat device requires an intention to make emissions controls work differently in testing. That trial concerned the industry's wider calibration practices rather than the EA189 software, which Volkswagen had admitted, and it shows how far the legal argument has moved from the original case.

## Reading it through a framework

### Stakeholder salience

Stakeholder theory sorts groups by how much power they have over a company, how legitimate their claim is and how urgent it becomes. Before September 2015, Volkswagen behaved as though its most powerful stakeholder on emissions, the regulator, could be satisfied in the test cell. The ICCT and West Virginia University had little power but a legitimate concern. Once their results reached CARB and the EPA, the claim acquired power and, after the notice of violation, urgency. A matter that had been technical became legal in a day.

Other groups then moved through the same sequence. Shareholders used their power at once: the shares lost about a third of their value over two days and roughly €25bn of value disappeared. US owners acquired power through class actions and the federal settlement, which paid each of them at least $5,100. German owners took longer because German procedure gave them weaker tools, and they had to wait for the 2020 model case and the Federal Court of Justice ruling. Prosecutors in two countries pursued individuals. Each group had its own route, and each route produced its own bill, which is why a €6.5bn provision grew to €31.3bn and then past €33bn. The framework suggests a lesson about disclosure: by announcing the 11 million figure at once, Volkswagen removed the risk of a second concealment scandal, but it also handed every stakeholder group worldwide the same starting point at the same moment.

### Real options

Real options thinking treats a large strategic commitment as a set of smaller bets that can be expanded, delayed or abandoned as information arrives. Roadmap E was presented as a firm self-commitment, in Müller's words "the yardstick by which we measure our performance". Its structure, though, behaved like a set of options. The €50bn battery tender secured the right to buy supply without forcing all of it into the early years. The target of up to three million electric cars a year was explicitly conditional on market development. MEB itself was an option that could be extended to other brands and even to other carmakers.

The delivery figures show what that flexibility meant. Electric deliveries were 8.3% of the total in 2024 and 10.9% in 2025, well short of the one-in-four share the company had said was possible. Keeping the options open protected the balance sheet from building capacity that buyers would not use. It also meant the public promise was missed. For a company whose crisis was about claims that did not match reality, that gap between target and delivery carries a reputational cost that an options valuation does not capture.

## Since then

The criminal process in Germany continues. In November 2025 a new trial opened at the Braunschweig Regional Court against five defendants, partly former Volkswagen managers, on charges including commercial fraud, tax evasion and criminal advertising. The alleged offences span November 2006 to September 2015 and cover about nine million vehicles. Reports said the trial could last until the end of 2026. Winterkorn's own trial opened in Braunschweig in September 2024, when he denied the charges, but it was interrupted within days after he was taken to hospital following an accident at home. It was later provisionally suspended after he was judged unfit to stand trial. He has continued to deny any criminal responsibility, and the presumption of innocence applies.

In England and Wales, Volkswagen settled the claims of about 91,000 owners of EA189 cars for £193m in May 2022, without admitting liability, and apologised for the "two mode software". The much larger Pan-NOx litigation over other engines and other manufacturers had its liability judgment in July 2026, with a further trial on remedies listed for October 2026.

The group's finances have weakened for reasons unrelated to diesel. In 2025 it reported revenue of €321.9bn and an operating result of €8.9bn, a return on sales of 2.8%, down from 5.9% in 2024. The annual report cited €2.9bn of extra costs from US import tariffs introduced in April 2025 and €4.7bn of charges linked to changes in Porsche's product plans. Electric deliveries rose to about one in nine vehicles, with strong growth in Europe and falls in China and North America. The company that set out after 2015 to lead the shift to electric cars now faces Chinese manufacturers with lower costs in that very market.

## What to take from it

- A product that meets a standard only under test conditions is a hidden liability, and the cost tends to arrive all at once when an outsider measures real-world performance.

- First estimates of a scandal's cost are usually far too low, as Volkswagen's €6.5bn provision in September 2015 grew to €31.3bn by March 2020 and to more than €33bn by 2025.

- When many stakeholder groups each have their own legal route to redress, a company should plan for a long sequence of settlements in different countries rather than a single resolution.

- Withholding the findings of an internal investigation, even for sound legal reasons, can prolong distrust among the investors a company needs to win back.

- A bold strategy announced after a crisis changes the story for a time, but it is later judged on delivery, and Volkswagen's fully electric share was 10.9% in 2025 against a stated possible one in four.

## Questions to think about

- The ICCT's road tests were carried out in 2013 and 2014, and Volkswagen formally admitted the defeat device in September 2015. What should a board do when an outside group reports that its product behaves differently in use than in testing?

- Volkswagen announced the 11 million figure four days after the US notice, and its shares lost about a third of their value in two days. Was early global disclosure the right call? What would the alternative have cost?

- Using Exhibit 2, calculate the group's operating margin before diesel special items for each year from 2015 to 2019. What does the result suggest about the underlying business during the crisis?

- US owners of 2.0-litre cars received at least $5,100 each; German owners in the 2020 settlement received between €1,350 and €6,257. Why might the same company treat owners so differently in two markets, and is that defensible?

- Pötsch named individual misconduct, weak processes and a mindset that tolerated rule-breaking. Which of these is hardest for a new chief executive to change, and how would you measure progress?

- Roadmap E said up to three million fully electric cars a year could be sold by 2025. Actual deliveries were about 983,000. Was the target a mistake, a useful stretch goal or a reasonable option that the market chose not to exercise?

## Concepts at work

Stakeholder mapping, Real options, Crisis disclosure, Corporate governance. Explore them in [Insights](/insights/).

## Further reading

Oxford University Press covers this story as a teaching case in *Cases in Marketing* on Oxford Business Trove. The sources below are the public record this page was written from.

*Written from the public sources listed below. Figures are as those sources report them.*