Volkswagen slashes outlook as US tariffs add $1.5 billion in costs

Volkswagen AG cut its 2025 earnings forecast after US import tariffs imposed under President Donald Trump’s administration added €1.3 billion ($1.53 billion) in costs during the first half of the year. The German carmaker now expects an operating return on sales of 4–5 per cent, down from a previously projected range of 5.5–6.5 per cent, amid rising trade tensions, internal restructuring, and weaker performance at its premium brands Audi and Porsche. Net profit for the second quarter fell by nearly a third year-on-year to €2.29 billion ($2.69 billion), while operating profit dropped 29 per cent to €3.83 billion ($4.49 billion). Despite delivering slightly more vehicles than the previous year, revenue declined 3 per cent to €80.6 billion ($94.59 billion).

Tariffs and restructuring take a toll

The sharp reduction in earnings was primarily attributed to the 25 per cent US tariff on European car imports, implemented in April, which continues to impact profitability, especially for Audi and Porsche, which rely heavily on US sales. Volkswagen warned that if the 27.5 per cent tariff persists into the second half, its performance could remain at the lower end of its forecast ranges. A reduction to 10 per cent could offer partial relief.

Beyond the tariff pressure, Volkswagen is dealing with the consequences of a major internal overhaul. The group plans to cut over 35,000 jobs globally by 2030 in an effort to reduce costs and shift focus toward electric vehicles (EVs) and software-based mobility. The company also cited weaker margins from increased EV sales. While EVs are central to Volkswagen’s long-term strategy, the transition is proving costly in the short term. The group is also seeing declining demand in China, its largest market, where domestic brands are gaining ground.

Electric vehicles and partnerships offer hope

Amid the broader struggles, EV sales in Europe offered a rare bright spot. Volkswagen reported a 73 per cent jump in electric vehicle deliveries across the region in Q2, boosted by rising demand for models such as the VW ID.5, Audi Q4 e-tron, and Skoda Enyaq. Rebates and a consumer shift away from Tesla, reportedly due to CEO Elon Musk’s political activity, helped fuel the gains.

Volkswagen is also banking on future partnerships to turn the tide. Collaborations with US-based Rivian and China’s Xpeng are expected to yield new models by next year, potentially improving competitiveness in both markets. However, uncertainty remains high. The company flagged global geopolitical tensions, inflation, protectionism, and volatile commodity and energy prices as key risks. The outlook for global automotive sales in 2025 is mixed, with Volkswagen expecting flat vehicle deliveries compared to 2024.

Lower cash flow, flat sales forecast

Volkswagen now expects flat revenue for 2025, down from an earlier estimate of 5 per cent growth. Free cash flow is forecast between €1 billion ($1.17 billion) and €3 billion ($3.52 billion), with capital investment remaining high as the company restructures. Net liquidity in the Automotive Division is expected to range between €31 billion ($36.38 billion) and €33 billion ($38.73 billion).

Despite the challenges, Volkswagen said it would maintain a strong liquidity position and continue lobbying for a reduction in US trade barriers. The company warned that further political developments in the US, Middle East, and Eastern Europe could continue to disrupt the global automotive market.

(With inputs from agencies)