Trade War Hits VW’s Bottom Line
Volkswagen reported a €1.3 billion ($1.5 billion) first-half hit from U.S. tariffs, prompting the German automaker to slash its 2025 full-year sales and profit margin forecasts. The company now expects an operating margin between 4% and 5%, down from the previous 5.5% to 6.5% range. Sales, once projected to rise by up to 5%, are now expected to remain flat year-over-year.
The revision follows growing pressure on the global auto industry amid trade tensions sparked by President Trump’s tariff policies. Automakers worldwide are facing mounting costs, shrinking margins and increased competition from China. In Europe, additional challenges stem from regulatory mandates accelerating the electric vehicle transition.
Luxury Units Porsche and Audi Suffer Steep Declines
Volkswagen’s second-quarter operating profit dropped 29% to €3.8 billion, weighed down by tariffs, restructuring costs, and increased sales of lower-margin electric vehicles. Sales in the U.S. fell nearly 10% despite a 1.5% global rise in deliveries. North America made up 18.5% of the group’s revenue in the first half of 2025.
Luxury brands Porsche and Audi were hardest hit, reporting operating profit declines of over 90% and 64% respectively. Both brands are especially vulnerable as they lack production facilities in the U.S. and rely on exports. CEO Oliver Blume said he expects these divisions to recover in 2026, though this year marks a low point.
EU Seeks Tariff Relief Amid Pressure
In response to escalating costs, Volkswagen is urging EU negotiators to secure a deal with the U.S. to reduce the current 25% tariff. A recent agreement between Washington and Tokyo that sets a 15% rate has fueled hopes for a similar deal for Europe. EU diplomats have signaled a potential move toward a 15% baseline tariff to avoid the looming threat of a 30% rate starting August 1.
Finance chief Arno Antlitz stated that a Japan-style deal would help Volkswagen hit the mid-point of its updated margin forecast. However, he warned that time is running out. “We are already in July, so the longer we go into the second half of the year, the more we tend to the lower end of the guidance,” he said.
Restructuring and Cost-Cutting in Focus
To offset the financial impact, Volkswagen is accelerating its cost-cutting measures. The company is undergoing a significant transformation that includes cutting over 35,000 jobs by the end of the decade. CEO Blume stressed that cost discipline is critical, as the tariff pressures are unlikely to be short-lived.
Despite its efforts, Volkswagen’s slow shift to higher-margin vehicles and heavy reliance on exports have left it vulnerable. Investors reacted cautiously, with shares initially dropping 4.6% before rebounding slightly. The company’s ability to navigate tariff negotiations and restructure operations efficiently will be key to its recovery trajectory.
