By midday trading in Frankfurt, Volkswagen's share price fell down 19.3% at a three-year low of 130.20 euros. The massive fall of the carmaker's shares affected the Germany's main stock index, the DAX, which underperformed its peers in Europe with a 0.6 percent decline.
The company's woes on Monday follow a weekend that saw the company's reputation for probity seriously damaged by revelations from the US Environmental Protection Agency that it had rigged clean air rules. The EPA also hinted that VW faces fines that could run up to more than $18 billion.
According to the EPA, a device was used by VW which was programmed to detect when the cars are undergoing official emissions testing. This device used to turn off the emissions controls during normal driving situations, allowing the cars to emit more than the legal limit of pollutants.
Volkswagen marketed the diesel-powered cars as environment friendly. The cars, built in the last seven years, include the Audi A3, VW Jetta, Beetle, Golf and Passat models.
"The company will have to recall nearly 500,000 affected cars, which will cost it millions of dollars, and that's even before the damage to its brand and potential fines," said Michael Hewson, chief market analyst at CMC Markets.
VW has been ordered by the EPA to fix the cars at its own expense but suggested the car owners not to panic.