CEO Winterkorn may choke on this one.

By Geoffrey Smith
September 21, 2015

Shares in Volkswagen AG VLKPY are tanking Monday as the market reacts to the news that the company faked the results of diesel emissions tests in the U.S., exposing it to potentially huge fines.

By late morning in Frankfurt, Volkswagen’s market value had fallen by nearly 20 billion euros ($25 billion), as its preferred stock fell 20.7% and its less liquid voting stock 19%, as investors tried to put a price on the damage caused by the scandal.

The damage is threefold: first, there is the near-certainty of the fine that will be levied by U.S. authorities. Under U.S. EPA rules, each one of the 482,000 four-cylinder diesel VW and Audi models improperly tested since 2009 would be subject to $37,500 in fines – meaning a potential penalty of up to $18 billion. Reuters reported that the company has already ordered U.S. dealers to halt sales of some 2015 diesel cars.

Secondly, there is the threat that the scandal will reignite the boardroom war that has engulfed VW this year, a saga that has contributed to it underperforming its rivals’ stock prices this year. CEO Martin Winterkorn, who issued an apology over the weekend and who was in charge of the firm at the time of the cheating, is caught in a familiar logical trap: either he was complicit in illegal activity or he was ignorant of it; both interpretations give ammunition to his enemies, led by ex-chairman Ferdinand Piëch.

Thirdly, and most importantly of all, there is the inestimable damage to VW’s reputation. VW, like its German peers Daimler AG DDAIY and Bayerische Motorenwerke AG bmwyy , is obsessive about cultivating an image of technical excellence and the reliability and safety of its products. In that respect, the scandal represents the biggest challenge to the German car industry in years.

“This is not your usual recall issue, an error in calibration or even a serious safety flaw,” Reuters reported Bernstein analysts as saying in a note on Sunday. “There is no way to put an optimistic spin on this – this is really serious.”

An optimist might try to argue that the company has little to lose in the U.S., where it had a market share of less than 4% in 2014. But that made the U.S. one of the few areas where VW had the scope to grow in future–especially since its heavy exposure to emerging markets is looking like a riskier bet as growth slows down from China to Russia and Brazil.

Shares in BMW were dragged down 3.2% in Frankfurt Monday, while Daimler’s fell 3.6%. Reuters reported Daimler CEO Dieter Zetsche as trying to stop his company being tarred by association Sunday.

“I have a rough idea of what is happening and that it does not apply to us,” Zetsche told an event in Hamburg.

Winterkorn said in his apology that “We do not and will not tolerate violations of any kind of our internal rules or of the law.” He also said the company had commissioned an external investigation, but didn’t give any details as to who would conduct it.

Cynthia Giles, an enforcement officer at the EPA, said on Friday the cars in question “contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test”.

The feature, which the EPA called a “defeat device,” masks the true emissions only during testing. When the cars are on the road, they emit as much as 40 times the level of pollutants allowed under clean air rules meant to ensure public health is protected, Giles said.

FORTUNE‘s Doron Levin contributed to this report.

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