Volkswagen's stocks popped about 2 percent on Thursday after a proposed recall plan was rejected by California regulators.
The decision comes after the company claimed to use "clean diesel," but instead used Auxiliary Emission Control Devices (AECDs) to pass emission tests. Volkswagen announced last month that it had reached a $15 settlement agreement for the scandal.
The California Air Resources Board (CARB) said Volkswagen's plan did not demonstrate how the proposed fixes were designed to correct the nonconformities. The state plans to work with the EPA and Volkswagen to find a resolution. CARB also said the company would not disclose the types of AECDs used during the testing.
"VW's and Audi's submissions are incomplete, substantially deficient and fall far short of meeting the legal requirements to return these vehicles to the claim certified configuration," CARB said in its rejection letter to Volkwagen.
California is one of 44 states that Volkswagen has agreed to resolve existing and potential state consumer claims related to diesel matter.
"We continue to work closely with the U.S. Environmental Protection Agency and CARB to try to secure approval of a technical resolution for our 3.0L TDI vehicles as quickly as possible," a Volkswagen spokesman said.
Volkswagen's shares have dropped more than 41 percent in the past year.
Volkswagen's 12-month performance: