VW cuts outlook after US tariffs added 1.3 billion euros in costs

[BERLIN] Volkswagen lowered its financial outlook for the year, with the escalating cost of President Donald Trump’s tariffs weighing on earnings at the Audi and Porsche brands.

The automaker now sees an operating return on sales as low as 4 per cent, from at least 5.5 per cent previously, after the US duties added 1.3 billion euros (S$1.95 billion) in costs during the first half. Volkswagen also cited internal restructuring expenses and greater sales of lower-margin electric vehicles for the forecast change.

“We cannot assume that the tariff situation is only temporary,” chief executive officer Oliver Blume said on Friday (Jul 25) on a call, noting that Trump’s current levies would add several billion euros in costs this year. “We are counting on the European Commission and the US government to reach a balanced outcome on the tariff issue.”

Europe’s largest carmaker is under pressure to cut costs and improve its products to deal with crises in three key markets. Trump’s levies are eating into sales and earnings for import-dependent Audi and Porsche, while muted demand and high production costs weigh on profits in Europe. Volkswagen also is losing market share in China, where consumers increasingly opt for local brands.

Volkswagen now sees flat revenue for the year, from 5 per cent growth previously, and also reduced its outlook for free cash flow. The lower end of its forecast assumes the 27.5 per cent US tariffs will stick in the second half, while the upper end foresees the levies being reduced to 10 per cent.

“We need a good compromise,” chief financial officer Arno Antlitz said in an interview with Bloomberg Television. “A solution that fits both the needs of the American administration, but also European automakers.”

Volkswagen shares declined as much as 3 per cent in Frankfurt. The stock is still up around 6 per cent this year.

The German manufacturer isn’t alone in facing challenges: Some of its peers are dealing with tumult in top management, with Stellantis NV having recently named a new chief executive officer and Renault SA seeking a permanent CEO. Volkswagen is counting on partnerships with Rivian Automotive in the US and China’s Xpeng to bolster its products, though new models from those efforts won’t be available until next year. 

The challenges in China, where brands led by BYD are locked in a fierce EV price war, continue to hurt Volkswagen’s profits. The operating result from its operations in the biggest car market fell more than a third in the second quarter. Volkswagen expects its joint-venture activities in the country to contribute at best €1 billion this year, down from the 1.7 billion euro proportionate operating result in 2024.

The group’s trucking business Traton SE late Thursday cut its outlook due to the trade hurdles as well as weak economic growth in Europe and declining orders in Brazil. The unit’s adjusted operating result slumped 29 per cent in the second quarter.

There were some bright spots. The namesake VW brand has seen EV sales rise in Europe in recent months thanks to rebating and buyers increasingly shunning Tesla over Elon Musk’s political activities. The company sees strong order intake momentum continuing through the end of the year in Europe after EV deliveries rose 73 per cent there in the second quarter, driven by robust demand for models including the VW ID.5, the Audi Q4 e-tron and the Skoda Enyaq. BLOOMBERG