Volkswagen's $1.5B Tariff Hit Slashes 2024 Profit Margin Forecast by a Third

Volkswagen (ETR: VOW.DE) is feeling the pinch from the ongoing U.S. tariffs, revealing a hefty 1.3 billion euro hit (roughly $1.5 billion) on its first-half earnings. The German automaker hasn't just pulled out the calculator - it knocked down its full-year outlook, expecting both sales growth and profit margins to come in lower than previously forecast.

This tariff blow stems from the trade tensions stoked by President Donald Trump's administration, which slapped a 25% levy on European car imports earlier this year. Volkswagen is among several European carmakers on the ropes, juggling these extra costs alongside fierce competition from China and the expensive push towards electric vehicles.

Originally, Volkswagen aimed for an operating profit margin between 5.5% and 6.5% for 2025. Now? Expect something closer to 4% to 5%. On the sales front, the company shifted from forecasting up to 5% growth to a flat line against last year's numbers.

The tariff hit is unmistakable: 1.3 billion euros lost in just six months. Post-earnings, Volkswagen shares were down about 3.5% in Frankfurt's pre-market trading.

VW isn't taking this lying down. The company's pushing back through European trade channels, lobbying for tariff relief or reductions-one idea being to leverage auto exports and U.S. investments to bargain down the steep 25% rate.

If the current tariff situation lasts, Volkswagen expects its results to settle at the weaker end of these revised projections. On the other hand, a drop to a 10% tariff rate could ease the financial strain, bringing results closer to the top of the new guidance range.

The uncertainty surrounding tariffs remains a dark cloud, as Volkswagen acknowledges. Meanwhile, EU diplomats have hinted at a potential compromise: a 15% tariff to dodge an even harsher 30% penalty set to take effect on August 1. The recent trade deal between the U.S. and Japan has fueled hopes that Europe might secure a similar break, which initially gave shares in European automakers a bump.

Looking at the quarter ended June 30, Volkswagen's operating profit slid 29% year-over-year to €3.8 billion. Besides tariffs, the company flagged restructuring costs and the increasing sales of lower-margin electric vehicles as factors weighing on profitability. On top of all this, the broader European auto market continued to slow, with Volkswagen trailing behind peers while navigating a massive overhaul - including plans to shed over 35,000 jobs by 2030.