Car manufacturers finding themselves in debt aren't solely due to tariffs
European car manufacturers are feeling the brunt of President Trump's tariffs on imported vehicles, leading to disrupted U.S. imports, higher costs, and strategic responses such as halted shipments and frozen inventories.
One of the most affected companies is Volkswagen, with the Audi brand stopping the shipment of many vehicles to the U.S. market. Around 37,000 units, enough for two months of sales, are currently held in inventory while the company evaluates longer-term strategies.
The tariffs, set at 25% on European auto imports, add substantial per-unit costs, estimated at $8,500 per vehicle from the EU in 2025, significantly eroding margins. Several European automakers have cited tariffs as a direct hit on profitability.
In response, European auto executives are engaging with EU leadership, such as meetings with EU President Ursula von der Leyen, to consider countermeasures and negotiate trade terms. Automakers are also adapting production and distribution strategies, with some U.S. companies increasing domestic manufacturing to mitigate tariff exposure.
Analysts estimate that tariffs on European imports alone could cost automakers $4.6 billion in 2025, part of a broader $8.6 billion tariff burden from all foreign sources affecting the U.S. auto industry this year. These costs are driving margins down and forecast sustained profitability challenges for the industry.
The EU is contemplating retaliatory tariffs and additional trade restrictions on U.S. goods if negotiations fail, covering billions of euros in U.S. exports, which further complicates the trade environment for European OEMs with cross-Atlantic operations.
The profitability of European carmakers is likely to weaken further in 2025 due to tariff costs, declining sales in China, and the high cost of transitioning to EVs amidst regulatory pressures. This is evident in the financial results of major European manufacturers.
Mercedes-Benz sales decreased 6% in H1 2025, prompting a downward revision in 2025 sales guidance to significantly below 2024 levels. Renault Group reported a 2.5% revenue increase in H1 2025, but operating margin slipped to 6.0% from 8.1% a year prior. BMW's group profit before tax in Q2 2025 tumbled 32% to €2.6 billion.
Toyota revised its full-year net margin forecast downward to about half of the 9.9% achieved in the previous fiscal year, and reported a net income drop of $3.3 billion YoY in Q2 2025, despite a slight increase in global vehicle sales. Renault Group had a staggering net loss of €11.2 billion in H1 2025.
Volkswagen reported a 29.4% drop in Q2 operating profit and a 3% decrease in sales. BMW's Q2 2025 revenues decreased 8.2% to €33.93 billion. Stellantis saw a 12% decrease in global shipments, a 13% decrease in net revenues, and a 48% decrease in net income in H1 2025.
There's a clear pivot underway from a focus on pure-electric BEVs to hybrid PHEVs, possibly as a response to the costly transition to EVs and the challenging market conditions. Porsche, part of the VW Group, announced 1,900 redundancies at its factories.
Tesla's Q2 2025 automotive revenues fell 16% YoY, net profit decreased 16%, and vehicle sales dropped 13%. Tesla's carbon credit sales slumped by more than 50% in Q2 2025, adding to the company's financial woes.
As the situation continues to evolve, it remains to be seen how European car manufacturers will navigate these challenging times and what long-term impacts the tariffs will have on the industry.
[1] The New York Times [2] Bloomberg [3] Reuters
- The financial burdens from tariffs are impacting various areas of European car manufacturers' operations, a trend reflected in the financial results of companies such as Volkswagen, Mercedes-Benz, Renault Group, BMW, and Stellantis.
- In an effort to adapt to the changing business landscape, automakers are exploring alternative strategies to mitigate tariff costs, including a shift towards hybrid vehicles and restructuring manufacturing and distribution processes.
- The tariff-related financial challenges, coupled with declining sales in key markets like China and the costly transition to electric vehicles, raise questions about the long-term financial health of the European car manufacturing industry. Additionally, the potential for retaliatory tariffs could further complicate the current trade environment and impact the profitability of sports teams that rely on vehicle sponsorships and advertising revenues.
