POAHY Porsche Automobile Holding SE (PK)

By William Boston And Mike Spector 

Shares in Volkswagen AG plunged Wednesday on word its emissions-testing scandal could affect about 800,000 more cars than previously disclosed, costing it at least an extra $2 billion, and after the company said it would stop U.S. sales of some vehicles.

Europe's largest auto maker said it understated the level of carbon-dioxide emissions and fuel use of the additional cars to regulators. Some of the cars were gasoline-powered, Volkswagen said, moving the violations beyond the company's diesel fleet for the first time.

German Transport Minister Alexander Dobrindt said on Wednesday that Volkswagen had advised the ministry that software in the cars manipulated carbon dioxide emissions. Of the affected vehicles, about 98,000 are gasoline-powered, Mr. Dobrindt said. Volkswagen hadn't previously said how many were gasoline or diesel.

Shares were off nearly 9% at EUR100.45, or $108.98, in Frankfurt on Wednesday. Shares of Porsche Automobil Holding SE, a controlling shareholder of Volkswagen, also were down more than 8%.

Ratings firm Moody's Investors Service downgraded some of Volkswagen's corporate debt, citing "mounting risks to Volkswagen's reputation and future earnings" in the wake of new disclosures in the widening emissions crisis.

Germany plans to test all Volkswagen cars for fuel-economy, CO2 and nitrogen-oxide emissions, the minister also said, after Volkswagen admitted some vehicles it tested raised questions about past mileage claims.

In the U.S., Volkswagen said on Wednesday it would halt sales of newer model vehicles with 3.0 liter diesel engines while it reviews new U.S. test data. The stop-sale includes 2013-2016 model-year Volkswagen and Audi vehicles and 2014-2016 Porsche Cayenne sport-utility vehicles. Earlier this week, the U.S. Environmental Protection Agency said its tests found illegal software in some of those vehicles that allowed them to dupe emissions tests.

The company separately ordered recalls of other cars in the U.S. to repair a faulty camshaft lobe that can shear off, reducing engine and braking power.

The 91,867 models affected include the Jetta, Passat, Beetle, Beetle Convertible, Golf/GTI and Golf Sportwagen. Overall, the company through the end of October sold roughly 294,600 vehicles in the U.S. this year, including about 31,000 SUVs.

Volkswagen disclosed the latest emissions error on Tuesday after conducting its own tests following its admission in September that up to 11 million diesel-powered vehicles world-wide with model years between 2009 and 2015 could have so-called defeat devices that lowered tailpipe emissions of nitrogen oxides during laboratory testing.

U.S. and European authorities have begun regulatory and criminal investigations.

Tuesday's disclosure is the first to involve the greenhouse gas carbon dioxide, which has been a focus of both European and U.S. authorities over the past decade.

Since the first disclosures in September, VW has reshuffled top management and suspended senior executives in charge of engine development. The new team is scrutinizing the company's entire fleet of automobiles.

The Wolfsburg, Germany-based company's supervisory board said it was "deeply concerned" about the revelation VW misstated carbon-dioxide emissions in addition to cheating on nitrogen-oxide tests. The board said it intends to meet soon "to consult on further measures and consequences."

The company said it was in contact with regulatory agencies to determine steps needed to clarify the situation and to establish accurate values for the carbon-dioxide emissions of the affected vehicles.

"From the very beginning I set out to ensure that we mercilessly and completely clear up this situation," said Volkswagen Chief Executive Matthias Müller. "This is a painful process but there is no alternative."

Volkswagen, Europe's largest auto maker, gave no details about which vehicles or engines are affected by the misstated carbon-dioxide levels. Industry analysts said cars sold in Europe were likely most affected.

In providing an estimate of financial risk from its new disclosure--EUR2 billion, or $2.19 billion--VW didn't say how it reached the figure. Last week, it recorded a charge to earnings of EUR6.7 billion to pay the costs of fixing diesel cars affected by software that could lower emissions during testing.

"VW is leaving us speechless," said Arndt Ellinghorst, an automotive analyst at Evercore ISI, a research group.

Tuesday's disclosure came a day after the U.S. Environmental Protection Agency leveled new allegations. The EPA said it found defeat devices on 3.0-liter diesel engines used in larger sport-utility vehicles from against Volkswagen such as its Touraeg, Porsche Cayenne, Audi Q5 and Q7 SUVs and Audi A6 and A8 sedans. The agency said the vehicles it tested had nitrogen-oxide emissions up to nine times the allowable standard.

Volkswagen disputed the EPA's claims, saying it didn't install any emissions-cheating software on the engines used in these vehicles.

Monday's allegations by the EPA hit Porsche, a Volkswagen sports-car brand and big profit center, for the first time. Mr. Müller previously ran Porsche, and the latest news raised questions of what he might have known about engines at Porsche.

Some investors in Europe sold shares on concern that the new EPA allegations could threaten Mr. Müller just over a month after he took charge in the wake of Volkswagen's admission that it had cheated on emissions tests on millions of small and midsize diesel-powered vehicles.

That admission led to the resignation of Martin Winterkorn, the former CEO, and catapulted Mr. Müller from head of Porsche AG to chief of Volkswagen. Now, some analysts are asking whether an insider is the right person to lead Volkswagen out of the worst crisis in the company's 78-year history.

"The allegations are all the more serious given that VW's new CEO Matthias Müller came from Porsche and any hint of further deception could well see his position come under scrutiny," said Michael Hewson, chief market analyst at CMC Markets, a brokerage firm.

Mr. Müller became Porsche's chief in 2010. An insider, he was a protégé of his predecessor and was liked by the Porsche-Piëch clan that controls Volkswagen's voting stock. He oversaw Volkswagen group product planning from 2007 to 2010.

"There was always a chance that Porsche and Audi would be directly or indirectly involved in the diesel saga," said David Buik, a market commentator at Panmure Gordon.

Friedrich Geiger contributed to this article.

Write to William Boston at william.boston@wsj.com

Corrections & Amplifications

Porsche Automobil SE is a controlling shareholder in Volkswagen AG. An earlier version incorrectly described Porsche Automobil SE as Volkswagen's financial holding.

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(END) Dow Jones Newswires

November 04, 2015 13:28 ET (18:28 GMT)

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