Volkswagen Cuts Forecast After $1.5 Billion Hit from U.S. Tariffs

On July 25, Germany’s Volkswagen announced a significant downward revision to its full-year forecast after reporting a sharp drop in second-quarter profit, largely driven by the impact of U.S. tariffs and restructuring costs.

Sharp Drop in Q2 Profit, Misses Expectations

Operating profit for Q2 fell to €3.83 billion ($4.49 billion), a 29% decrease from €5.4 billion in the same period last year. This figure also missed analyst expectations of €3.94 billion, according to a FactSet consensus. Quarterly revenue came in at €80.8 billion, below the projected €82.2 billion.

Volkswagen disclosed that U.S. import tariffs alone cost the company €1.3 billion in the first six months of 2025. Restructuring provisions added another €700 million to its expenses during the same period.

2025 Outlook Revised Downward

The company now expects its 2025 operating return on sales to fall within a range of 4% to 5%, down from the previous forecast of 5.5% to 6.5%. Full-year sales are projected to remain flat compared to 2024, rather than rising up to 5% as initially anticipated.

Volkswagen's results highlight the growing pressure on European automakers, who are grappling with increased competition from Chinese carmakers and import tariffs of 25% imposed by the U.S. administration. There is also the looming threat of further tariff hikes — U.S. President Donald Trump recently threatened to raise duties on EU auto imports to 30% starting August 1.

U.S. Tariffs Continue to Threaten the Sector

The company said it assumes that current U.S. import tariffs of 27.5% will remain in place through the second half of the year, while acknowledging that there is "high uncertainty" regarding trade policy developments.

Despite the challenges, Volkswagen shares rose 2.7% on Friday morning, reversing earlier losses.

EV Push Gains Momentum, But Hurts Margins

Volkswagen’s transition toward electric vehicles (EVs) is gaining momentum but weighing on margins. According to CFO Arno Antlitz, while the company continues to see strong product success — particularly in Europe, where one in four vehicles sold is from the Volkswagen Group — EV margins are still significantly lower than those of internal combustion engine (ICE) models.

Key Performance Metrics

Global vehicle sales in Q2 were down 3% year-over-year, totaling 80.8 million units.

Order intake for vehicles in Western Europe rose 19% in the first half of the year.

EV orders in the first half of 2025 increased by 62%.

First-half vehicle sales rose by 19% in South America, 2% in Western Europe, and 5% in Central and Eastern Europe. These gains helped offset a 3% decline in China and a 16% drop in North America, the latter mainly due to tariffs.

The company expects a full-year investment ratio between 12% and 13% for its automotive division.

Expert Commentary

Rico Luman, senior sector economist for transport and logistics at ING, noted that Volkswagen’s EV strategy is showing promising results, especially in Europe:

“Yes, they struggled to keep up in the export market, but at least the home market is doing well at the moment. They are ramping up EV sales. It’s now hitting 11% of total global sales — and in Europe it is already much more.”

Conclusion

Volkswagen’s revised guidance underscores the mounting challenges facing the global auto industry: rising trade barriers, evolving technology, and regional disparities in demand. As the company invests further in electrification while navigating an uncertain geopolitical landscape, investor attention will remain focused on its ability to manage costs and maintain competitiveness.