Volkswagen's Legal Crossroads: Prosecutors Seek Prison Terms for Executives Amid Ongoing Scandal Fallout

The Volkswagen emissions scandal, now entering its tenth year, has reached a pivotal moment. On April 25, 2025, prosecutors in Braunschweig, Germany, concluded the evidence phase of a landmark trial against four former executives accused of orchestrating the use of “defeat devices” in diesel engines—a scheme that allowed vehicles to emit up to 30 times more nitrogen oxides (NOx) than permitted under U.S. standards. With closing arguments imminent, the case underscores the high stakes for Volkswagen (VW) as it grapples with lingering legal, financial, and reputational risks.

The Braunschweig Trial: A Milestone in Corporate Accountability

The trial, spanning over three and a half years, centers on charges of fraud, market manipulation, and environmental harm. Prosecutors argue that the defendants knowingly installed software to circumvent emissions tests, deceiving regulators and consumers. A guilty verdict could result in prison sentences for the former managers, marking a historic precedent for individual accountability in corporate environmental crimes.

This case is distinct from earlier proceedings, such as the 2017 U.S. conviction of former VW manager Oliver Schmidt, who received an 84-month prison term for his role in the conspiracy. While the U.S. case targeted a lower-level executive, the Braunschweig trial focuses on senior figures, including engineers and managers, potentially signaling a broader shift in German corporate liability norms.

Global Legal Landscape: A Multijurisdictional Minefield

Volkswagen’s legal woes extend far beyond Germany. Civil lawsuits and regulatory actions in Europe, North America, and beyond continue to pile up, with unresolved cases threatening to erode shareholder value further.

• Europe:
• Netherlands: An opt-out class action, Stichting Volkswagen Car Claim, won a partial ruling in 2021, entitling owners of EA 189 engines to refunds. Appeals are ongoing, but a final ruling could force VW to compensate over 100,000 Dutch consumers.
• France: A class action by Confédération de la Consommation seeks damages of €20–30 billion for 1 million affected vehicles, pending since 2020.

• Belgium: A December 2024 settlement required VW to pay 5% of purchase prices to 60,000 Belgian consumers.

• U.S. and Beyond:

• U.S. Settlements: VW paid $30.7 billion in fines and restitution after pleading guilty in 2017. However, ongoing lawsuits over thermal window features—a temperature-based emissions control system—could trigger additional penalties.
• South Africa: An opt-out class action involving 80,000 vehicles remains unresolved, with plaintiffs seeking €2.3 billion in damages.

Financial Impact: Legal Costs and Operational Risks

The cumulative cost of settlements, recalls, and fines already exceeds €35 billion, according to Volkswagen’s 2024 financial disclosures. However, the company acknowledges that many proceedings remain unresolved, with contingent liabilities “not reliably estimable.” Key risks include:

1. Criminal Fines: If convicted, the Braunschweig defendants could face prison terms, but the broader financial penalty for Volkswagen itself hinges on the court’s interpretation of corporate liability.
2. Civil Settlements: Unresolved class actions, particularly in Europe, could require refunds or compensatory payments. For example, the Dutch case alone could cost VW €1.5–3 billion.
3. Regulatory Compliance: The European Court of Justice’s 2022 ruling against “thermal window” features has forced VW to update software for millions of vehicles. Appeals are ongoing, but adverse outcomes could trigger recalls or fines.

Investor Considerations: Weighing Risks and Recovery Prospects

Volkswagen’s stock has fluctuated amid the scandal, reflecting investor uncertainty about the company’s ability to resolve liabilities. As of April 2025, VW’s share price stood at €214.50, down 12% from its 2023 peak, even as broader automotive markets rebounded.

Analysts highlight two critical factors for investors:

1. Legal Finality: A resolution of the Braunschweig trial and major class actions could reduce uncertainty and unlock value. If fines and settlements are within the €5–10 billion range already provisioned, shares could rebound. However, higher penalties could pressure the stock further.
2. Strategic Shifts: VW’s pivot to electric vehicles (EVs) under its “Strategy 2030” plan has reduced reliance on diesel engines. EV sales grew by 28% in 2024, with the ID.4 and Tridion models driving momentum. This transition may insulate the company from future emissions-related risks.

Conclusion: The Road to Recovery

Volkswagen’s future hinges on navigating the final stages of its legal odyssey while capitalizing on its EV transformation. The Braunschweig trial’s outcome will set a precedent for corporate accountability in Germany and beyond. If prosecutors secure convictions and moderate fines, investor confidence could stabilize. However, a worst-case scenario—such as €20 billion in unexpected liabilities—would strain VW’s finances and delay its EV ambitions.

For now, the stock trades at a 25% discount to peers like Renault and BMW, reflecting lingering legal concerns. Investors should monitor the Braunschweig verdict (expected by mid-2026) and settlement progress in key jurisdictions. While risks remain elevated, Volkswagen’s EV pipeline and market position suggest that a resolution of legal issues could unlock significant upside.

In sum, Volkswagen’s journey from scandal to recovery is far from complete. The next 12–18 months will test whether the company can turn the page on its diesel-era missteps and capitalize on its green transformation—a challenge with profound implications for shareholders and the global auto industry alike.