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Volkswagen Emissions Scandal Widens, Includes Porsche, More Audi Models

November 2, 2015, 10:56 PM UTC
Volkswagen Group Delivers Over 9 Million Vehicles In 2012
BERLIN, GERMANY - JANUARY 14: Visitors look at VW cars at a Volkswagen Group showroom on January 14, 2013 in Berlin, Germany. Volkswagen Group, which includes the VW, Audi, Porsche, Skoda, SEAT, Bentley and Bugatti brands, delivered a record 9.07 million cars to customers in 2012. Rising sales in the Americas and Asia helped to offset a drop in sales in western Europe. (Photo by Sean Gallup/Getty Images)
Photograph by Sean Gallup — Getty Images

The Environmental Protection Agency says Volkswagen Group violated the Clean Air Act when it used illegal software in certain six-cylinder diesel engines to circumvent U.S. emissions laws—an allegation that pulls Porsche as well as more Audi and VW models into the widening scandal.

The EPA alleges in its notice—the agency’s second to VW Group since it released its initial findings September 18—that the automaker developed and installed software that masks emissions in VW, Audi, and Porsche vehicles equipped with 3.0-liter V6 diesel engines for model years 2014 through 2016. Audi designed the 3.0-liter engine. The initial notice accused VW of using illegal software on certain 2.0 liter engines for model year 2009-2015 vehicles, including the Jetta, Jetta Sportwagen, Beetle, Audi A3, Golf, Golf Sportwagen and Passat.

The expanded list of vehicles includes the 2014 VW Touareg, 2015 Porsche Cayenne, and the 2016 Audi A6 Quattro, A7 Quattro, A8, A8L, and Q5. This latest notice covers about 10,000 diesel passenger cars sold in the U.S. since model year 2014. The EPA says an unknown volume of 2016 cars are involved.

Volkswagen has pushed back on the latest allegations. In a statement issued Monday, Volkswagen emphasizes “that no software has been installed in the 3-liter V6 diesel power units to alter emissions characteristics in a forbidden manner.” The company says it will cooperate with the EPA to clarify the matter. Audi spokesman Brad Stertz tells Fortune that the company is waiting to see the EPA’s data such as the type of emissions test conducted to better understand the allegations.

VW’s software on these vehicles includes one or more Auxiliary Emission Control Devices (AECD) that the company failed to disclose in their applications for certificate of conformity for each model, the EPA says in the notice. An AECD designed to circumvent emissions test is a “defeat device,” technology that senses when the vehicle is being tested for compliance with EPA emissions standards.

When a federal emissions test procedure begins, the vehicle operates in a low nitrogen oxide “temperate conditioning” mode, which allows it to meet emission standards. At exactly one second after the completion of the initial phases of the standard test procedure, the vehicle changes a number of operating parameters that increase NOx emissions, the EPA says. In some six-cylinder engine vehicles, NOx emissions increase up to nine times the EPA standard. In the first notice, the EPA originally alleged that certain four-cylinder engine vehicles equipped with defeat devices emit up to 40 times more pollution than emission standards allow.

The EPA and the California Air Resources Board have launched investigations into VW Group’s actions.

“VW has once again failed its obligation to comply with the law that protects clean air for all Americans,” Cynthia Giles, Assistant Administrator for the Office for EPA’s Enforcement and Compliance Assurance said in a statement Monday. “All companies should be playing by the same rules.”

The emissions scandal has already up-ended the company’s top-tier management—notably the resignation of CEO Martin Winterkorn—and caused its first quarterly loss in 15 years. Last month, the company said it would recall about 8.5 million cars in the European Union. It also faces fines that could reach into the billions of dollars.

The company does have a hefty pot of cash to help it shoulder the financial cost of the scandal without inflicting too much damage to its balance sheet. Net cash flow, over the first nine months of the year, had more than doubled from a year earlier to €11.8 billion ($13 billion), and Volkswagen reported the company’s amount of cash on hand rose to a net €27.8 billion ($30.6 billion) at the end of the third quarter.

That is, if the EPA’s latest allegations are a simple misunderstanding, as Volkswagen suggests in its official statement. If the EPA investigation shows the defect device was used in more VW, Audi, and Porsche models, the €6.7 billion that Volkswagen set aside to cover the costs of the scandal might not be enough. The financial damage to Audi and Porsche could also be significant in the fourth quarter and into 2016.