Volkswagen Warns of £1.13bn Tariff Costs as US Trade War Bites

Strategic Insights -

The German car giant Volkswagen has revealed it has taken a £1.13bn hit in the first half of the year due to Donald Trump's US import tariffs. The company's operating result decline was primarily caused by high costs resulting from increased US import tariffs. Volkswagen, which makes brands such as Audi, Seat, and Skoda, has also reduced its profit margin range to 4% to 5% for the year, assuming that the US president will make permanent tariffs of between 10% and 27.5%. The company's reduced revenues underscore the German chancellor's continued appeal to Trump to sign a deal on tariffs with concessions for the EU car industry.

Key Takeaways:

  • Volkswagen has suffered a £1.13bn decline in operating result primarily due to high costs from increased US import tariffs.
  • The company has reduced its profit margin range to between 4% and 5% for the year, based on an assumption that tariffs of between 10% and 27.5% will be made permanent by the US president.
  • German car exports to the US fell sharply in April and May as import tariffs imposed by Trump hit automakers' sales in their most important foreign market.
  • Auto exports to the US fell by 13% in April and 25% in May from the same months the previous year.
  • 64,300 vehicles were shipped to the US over both months.
  • The US charged a 2.5% tariff on European-made cars, while the EU had a 10% duty on vehicles imported from the US.
  • The EU is close to a deal with the US for blanket tariffs of 15% on most goods with no special exemption for the automotive industry.
  • Volkswagen is considering cutting 35,000 jobs by 2030.
  • Puma, a German-owned company, expects US trade tariffs to cost it €80m in gross profit this year and now expects to make a loss in adjusted earnings before interest and taxes.

Statistics:

  • £1.13bn - the decline in operating result for Volkswagen in the first half of the year.
  • 4% to 5% - the reduced profit margin range for Volkswagen for the year.
  • 13% - the decline in auto exports to the US in April from the same month the previous year.
  • 25% - the decline in auto exports to the US in May from the same month the previous year.
  • 64,300 - the number of vehicles shipped to the US over both April and May.
  • 15% - the proposed blanket tariffs on most goods in a deal between the EU and the US.
  • €80m - the expected cost of US trade tariffs for Puma in gross profit this year.

Sources:

  • The Guardian
  • Reuters
  • Volkswagen press release
  • VDA industry association press release
  • Stellantis press release
  • Volvo press release
  • EU press release
  • Puma press release