U.S. tariffs contribute to a significant 40% drop in Volkswagen's earnings
Lemme break it down:
The Volkswagen Group's financial report paints a murky picture for the year, with a 2.8% jump in sales revenue to 77.6 billion euros, but a significant drop in operating margin to 3.7%. Profit before tax dropped to 3.1 billion euros, and after-tax profits plummeted to 2.18 billion euros, down from 3.68 billion euros.
Arno Antlitz, the CFO of Volkswagen, described the start of the year asambiguous. The decline in profitability can be attributed to increased costs and excess capacity at European plants, weak demand in China (a crucial market for the automaker), and uneven electric vehicle purchases in Europe and the US. The tariffs imposed by Washington pose a potential threat to profits, as reported by Bloomberg.
Shares of Volkswagen Group took a hit, plummeting 0.86% in pre-market trading on April 30 on the Nasdaq.
On April 3, 25% tariffs on imported cars and car parts produced outside the US came into effect. The US President made it clear that these tariffs would only apply to "non-US content of the vehicle" for vehicles produced under the USMCA agreement.
In response to these tariffs, European automakers, including Volvo and Mercedes-Benz, are considering raising prices and moving car production to the US. Nissan Motor is also contemplating moving some production to the US. Audi announced that cars imported into the US after April 2 would not be temporarily handed over to dealers. British automakers Aston Martin and Jaguar Land Rover have expressed plans to limit supplies to the US.
The new U.S. tariffs (25% on imported vehicles and components, plus existing steel/aluminum duties) are putting pressure on European automakers. The specific responses from brands remain unclear, but key elements of the tariff relief include overlapping duty prevention and a retail price credit system. Brands like Volkswagen, Mercedes-Benz, and Volvo, with US manufacturing, could offset tariffs through the credit system. However, Aston Martin, Jaguar Land Rover, and Audi models imported from Europe remain vulnerable to full tariffs unless they shift production.
Likely responses include accelerated localization (expansion of US production to qualify for credits), price adjustments (pass-through costs for luxury marques like Aston Martin and Jaguar Land Rover, risking demand erosion), and supply chain shifts (increased sourcing of steel/aluminum from tariff-exempt allies to mitigate material costs).
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- The ongoing tariffs imposed by the US government pose a threat to Volkswagen's profitability, as they may increase the costs of imported vehicles and components.
- In light of the US tariffs, Volkswagen might need to adjust share prices or consider shifting some production to the US to avoid full tariffs and maintain profitability.
- Changes in Volkswagen's approach, such as localizing production or adjusting prices, could potentially impact the demand for their shares in the financial market.
