European luxury carmakers raise prices amid tariff strain

European luxury car manufacturers, including Porsche and Aston Martin, are increasing US prices to offset the rising costs caused by tariffs imposed by the US government. These hikes come in the wake of a trade deal between the US and Europe, which lowered tariff rates to 15 per cent from the previous 27.5 per cent, but still remains far higher than the previous 2.5 per cent rate. This adjustment has prompted automakers to pass on the additional costs to consumers, with Porsche increasing prices by between 2.3 per cent and 3.6 per cent in July, following its full-year profit target cut and a forecasted $462 million hit from tariffs in the first half of the year.

Porsche CEO Oliver Blume acknowledged the global challenges the company faces, stating, “This is not a storm that will pass,” after reporting a significant dip in its revenue and profit. The company has also ruled out establishing a US production presence to bypass tariffs, citing the ongoing global challenges impacting the automotive sector.

Tariff burden weighs on Mercedes and Porsche

Both Porsche and Mercedes have been hit hard by the tariff costs, leading to a significant impact on their financial performance. Mercedes-Benz, in particular, reported a 10 per cent decline in revenue to €33.15 billion ($38.82 billion) in Q2 2025, with net profit dropping nearly 70 per cent. The company also lowered its 2025 revenue outlook, citing tariff impacts, competition, and shifting consumer demand, especially in China. CFO Harald Wilhelm indicated that tariffs had already cost Mercedes hundreds of millions of euros, with the financial burden expected to intensify in the second half of the year.

For Porsche, the pain is similarly acute, as the company saw a 6.7 per cent drop in first-half revenue to €18.2 billion ($21.04 billion). The company reported extraordinary expenses, including €400 million ($462.4 million) from tariff costs, resulting in a projected decrease in its return on sales to 5-7 per cent for the year, down from 14.1 per cent in 2024. Both automakers are facing compounded challenges from shifting consumer preferences, particularly in China, and slow adoption of electric vehicles (EVs) in the US.

Shifting market dynamics and consumer behaviour

While luxury carmakers adjust their pricing strategies to offset the tariff burden, they are also grappling with changing market dynamics. In China, where foreign automakers once dominated, local brands such as BYD and Xiaomi have been gaining traction with consumers, thanks to their tailored features and competitive pricing. This shift has impacted European automakers’ sales in the region.

In the US, the adoption of electric vehicles (EVs) has been slower than expected, impacting both Porsche and Mercedes, who have invested heavily in EV models. Mercedes, for instance, is no longer accepting orders for its 2025 EVs in the US, while Porsche is dealing with high inventories of its Taycan EV, which has led to dealer discounts.

Despite these challenges, both Porsche and Aston Martin have continued to raise prices in the US market, signalling that larger carmakers could follow suit in the second half of the year as they seek to mitigate the ongoing financial pressure. The higher tariff rates, while lower than initially feared, continue to have a significant impact on the luxury car market, forcing manufacturers to adjust their strategies to safeguard profitability.

(With inputs from agencies)