A report that a diesel-powered BMW X3 was found to have dirty emissions was enough to send BMW's shares spiraling today. Source: BMW Group.
What happened: Shares of BMW Group were down as much as 8% in European trading today, on a report that a road test of a diesel BMW found that its emissions were much dirtier than allowed by law.
Shares recovered somewhat after BMW issued a strong statement insisting that its diesel engines comply with all applicable regulations. BMW closed at 75.68 euros in European trading, down more than 5%.
Why it's important: German auto giant Volkswagen Group is embroiled in a massive global scandal after it admitted to equipping some of its diesel-powered cars with software that allowed the engines to pass emissions tests despite emitting illegal levels of pollutants.
The scandal will cost VW billions, and it has already cost CEO Martin Winterkorn his job . More executive firings are expected in coming days. But it has also called into question the so-called "clean diesel" technology.
In recent years, some automakers -- particularly German ones -- have enjoyed good sales of diesel-powered cars thanks to new technology that makes their exhaust fumes much cleaner than the dirty diesel engines of old.
Because diesel engines can get better fuel economy than their gasoline equivalents -- and because other technological advancements have made the latest diesel-powered cars quiet and fun to drive -- they have become popular choices in some parts of the world, particularly with customers concerned about the environment.
But the VW revelations seem to call the whole "clean diesel" technology into question. If VW couldn't pass emissions tests without cheating, the thinking goes, is it possible that other makers of "clean diesels" are also cheating?
On current evidence, it doesn't seem likely. Both BMW and rival Mercedes-Benz have insisted in strong terms that their "clean diesel" engines meet emissions standards without any trickery.
But a report in Germany that a BMW SUV might have tested at 11 times the European limit for air pollutants was enough to send the company's shares spiraling.
What happens next: It's likely that shares of most automakers will continue to be volatile as the VW story continues to dominate headlines. It's also likely that regulators in several countries will carefully test diesel engines from automakers other than VW to ensure that they really do comply with air-pollution limits.
That will affect more than the German automakers. Nearly all of the major automakers sell diesel-powered cars in certain parts of the world. They're especially popular in Europe, where diesel fuel enjoys tax advantages.
Auto investors have to hope that this turns out to be an isolated incident, not an industry-wide pattern of cheating. Right now, it seems likely that VW is the only culprit. But until cars from the other automakers are proven to comply with the laws, auto investors -- and auto executives -- are likely to be jittery.
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The article Why BMW Shares Got Clobbered Today originally appeared on Fool.com.
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