Views on Volkswagen have morphed dramatically over the last ten days, with shares plunging immediately after the U.S. Environmental Protection Agency levied some serious accusations against it. Today Germany-listed shares of the automaker inched upward by as much as 1.4% to €104.75 per share as debate about the seriousness of those accusations continues to swirl.

Volkswagen hidden behind smog

Bank of America Merrill Lynch analyst Teo Lasarte and team say there’s just not enough visibility into what’s happening at Volkswagen right now or what will happen to it. The EPA accused the German automaker of using deceptive software in some of its vehicles to deceive emissions testers into thinking that they passed regulations even though they didn’t. A few days later, Volkswagen admitted to the allegation and said 11 million cars have the deceptive software—far more than the number initially estimated by the EPA.

The BAML team is currently bearish on Volkswagen credit and has initiated coverage with an Underweight -30% recommendation on the German automaker’s senior unsecured bonds, corporate hybrids and five-year CDS. Here’s a look at their spread curve for Volkswagen right now:

Volkswagen

Specifically looking at the hybrids, the BAML team said there’s a risk of coupon deferral, as Volkswagen has €7.5 billion in outstanding hybrid notes and is one of the biggest corporate issuers of them.

Risks clouding Volkswagen view

They list four risks Volkswagen now faces in terms of possible liabilities. One is regulatory fines, which is a given, and the second is lawsuits, several of which have already been filed and seek class-action status. Third are the costs relating to the recalls of all the affected vehicles, and fourth is the possibility of a capital increase into the company’s financial services arm.

Specifically relating to the financial services risk, the BAML team sees approximately €21 billion in assets which are exposed to the affected vehicles’ residual values. That amounts to about one-fifth of Volkswagen’s balance sheet, and they think the company has set aside provisions that are too conservative to cover this. However, they note that if the residual value of the company’s vehicles drops dramatically, its asset values may be impacted.

The analysts estimate about €26.5 billion in potential financial liabilities related to the issue, which is much higher than the industrial segment’s net cash position.

Not all bad

One bright area they noted was that Volkswagen’s three key drivers for profit are relatively shielded from the emissions scandal. They list the three key drivers as China, Audi and Porsche.

Another thing Volkswagen has going for it is the fact that its liquidity “remains sufficient,” they believe. The industrial division still had €8.1 billion in available credit it can draw down and €15.5 billion in cash and equivalents plus€12.2 billion in marketable securities. Further, they expect Volkswagen to see €5.2 billion from asset sales in the second half of this year.