The SEC Opened Inquiry into Volkswagen Over its Marketing Stunt of Changing its Name to ‘Voltswagen'
【Summary】The U.S. Securities and Exchange Commission opened an inquiry into automaker Volkswagen over a marketing stunt last month suggesting that the company was changing its name to "Voltswagen" to reflect its future commitment to producing electric vehicles. The false report pushed up VW’s preferred shares, common shares and ADRs on the day it was announced, which led to the SEC probe of the company.
The U.S. Securities and Exchange Commission (SEC) keeps tabs on companies that are publicly traded to ensure that false or misleading information does not affect a company's stock price, which can lead to huge losses for investors.
Now German automaker Volkswagen finds itself in a similar position. The SEC has opened an inquiry over a marketing stunt last month suggesting that the company was changing its name.
German news magazine Spiegel first reported the inquiry and the SEC's request for information in early April. The magazine quoted VW as confirming the SEC investigation.
Just before April Fool's Day, the U.S. unit of Volkswagen launched a marketing stunt in which it falsely said it was changing its name in the United States to "Voltswagen" to reflect its future commitment to producing electric vehicles.
The initial statement outlining the name change was posted on VW's website and accompanied by social media posts. The statement also included a detailed description of its purported rebranding efforts and new VW logos.
The story was picked up by various media outlets around the world, including FutureCar. At least one analyst even wrote a research note praising the name change.
The false report however pushed up VW's preferred shares, common shares and ADRs on the day it was announced, which led to the SEC probe of the company.
On April 1, VW of America CEO Scott Keogh told Reuters in an interview that the phony name announcement was a "gag" and an attempt to "have some humor" and "to celebrate our profound focus on electrification."
However, many people did not find the fake story humorous. VW was widely mocked on social media in the days after the announcement.
The initial statement outlining the name change, posted on its website and accompanied by tweets, was reported by Reuters and other outlets globally and included a detailed description of its purported rebranding efforts and new logos.
Volkswagen Group of America CEO Scott Keogh told Reuters in an April 1 interview that the phony name announcement was a "gag" and an attempt to "have some humor and "to celebrate our profound focus on electrification."
Tesla Also Faced a Similar SEC Investigation in 2018
Electric automaker Tesla faced a similar SEC probe in Aug 2018 after Chief Executive Elon Musk joked on Twitter that he was thinking of taking Tesla private at $420 per share, adding that funding was already secured for the move.
Musk's tweet stating that he secured the funding for the proposed buyout also sparked two separate lawsuits and a preliminary probe by the SEC, which sought proof that Musk had in fact secured financial backing.
Musk's tweet caused Tesla's stock price to jump and many short sellers lost money in the weeks following his controversial tweet. Musk's misleading tweets caused Tesla's stock price to jump by over six percent on August 7, and led to significant market disruption.
The SEC's complaint alleged that Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Additionally, Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.
It's one of the reasons that Tesla Chief Executive Elon Musk no longer holds the title of Chairman of the Board at the electric car company.
As part of the settlement with the SEC, Tesla and Musk were fined $20 million each. The $40 million in penalties were to be distributed to harmed investors under a court-approved process. Musk was also forced to step down as Chairman of the Board for at least three years.
For Volkswagen, the prank gone wrong mirrors the "dieselgate" scandal of 2015 that rocked the company, in which the automaker admitted to tampering with the emission control software on hundreds of thousands of diesel engine vehicles to mask excessive harmful emissions.
The scandal cost Volkswagen over $34 billion in fines and settlements and was one of Germany's biggest corporate crises. The automaker has since committed elerifying nearly 50% of its lineup in the U.S. by 2030.
In March VW shared its updated "ACCELERATE" strategy, which includes an updated timeline for new electric vehicles. The company originally planned for 35% of its European models to be battery-powered by 2030, but the company has doubled its target to 70% of its model lineup. In the U.S. and China, Volkswagen plans for 50% of its vehicles to be fully-electric by 2030.
The updated strategy as well as the automaker's plans to open 6 new EV battery cell factories in Europe sent the company's shares up 10% on March 16, which pushed Volkswagen's market value towards $150 billion, the highest level since 2015.
Volkswagen's common stock also surged as much as 29% in March after the company updated its electrification plans, its biggest intraday gain since 2008.
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