On Friday, the Environmental Protection Agency dropped a bombshell.

Between 2009 and 2015, Volkswagen intentionally used software to trick emission-testing equipment into passing noncompliant models equipped with its 2.0-liter four-cylinder TDI diesel engines. 

ALSO SEE: Volkswagen CEO Martin Winterkorn Resigns In Wake Of Diesel Emissions Scandal

And the market didn't hesitate to respond. VW stock has dropped by more than a third in the two trading days since the announcement.

The fact Volkswagen received $51 million in tax credits for "green" vehicles from the United States certainly isn't going endear the company to federal investigators. And theoretically, the company could be fined $37,500 per vehicle for the 482,000 diesel models it sold from 2009 to 2015, which would add up to a staggering $18 billion payout. But while it's likely a settlement will shave some billions off that sum, it's clear this fiasco is going to cost VW a pretty penny.

But the U.S. is not the full extent of the problem. The issue exists with VW's Type EA189 engines, which have been fitted to 11 million vehicles globally, and Germany's EPA equivalent, the Federal Motor Transport Authority (Kraftfahrtbundesamt, or KBA), has started its own investigation into TDI emission levels. In light of the situation, VW announced it has set aside $7.3 billion to prepare for the coming penalties and eventual lawsuits. How much this scandal will ultimately cost the German giant remains to be seen, and we'll be following the story closely.

READ: VW Diesel Troubles Could Become Audi And Porsche Problems

For an in-depth look at the diesel scandal, head to Green Car Reports.        


Follow Motor Authority on Facebook and Twitter.