Volkswagen stock price set to tumble as its Porsche opens investigation

Shares of Volkswagen AG (ETR: VOW) are set to open lower on Monday after luxury sports vehicle unit Porsche AG launched an investigation into suspected engine manipulation. Volkswagen stock price ended the prior week over 2% lower. 

Fundamental analysis: New scandal on the horizon?

Porsche has notified KBA - Germany’s automotive watchdog, the Stuttgart prosecutor’s office, and U.S. authorities of “suspected illegal changes to hardware and software that could affect exhaust systems and engine components”. 

The carmaker added that alleged engine manipulation relates to cars produced a few years ago. No evidence has been found that current production is affected. In the meantime, KBA has launched an official investigation. 

Local newspapers have reported that engines in question are those produced from 2008 to 2013. Accordingly, these engines were fitted onto Porsche’s Panamera and 911 models.

It seems that Porsche learned a lesson from Volkswagen’s handling of the emission scandal, and moved quickly to inform the authorities and public. In 2015, the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to Volkswagen Group for cheating emission tests in the U.S. 

Technical analysis: VOW price stops at key short-term resistance

Volkswagen stock price closed over 2% lower this week after recording two consecutive weeks of gains. The price action stopped at the confluence of key moving averages on the weekly chart. This zone that trades around the 150.00 handle is likely to continue to act as major resistance for the bulls. 

However, since shares are likely to tumble on Monday on Porsche reports, the risk is clearly tilted to the downside. The first level of interest is located at 141.80 where the 100-DMA is located, followed by 139.00, where the horizontal support sits. 

Summary

Volkswagen stock price is set to tumble lower to open the week ahead on reports that Porsche and Germany’s automotive regulatory body opened investigations into a potential engine manipulation that occurred between 2008 and 2013.