Volkswagen's Q2 operating profit fell 29% year-on-year, citing tariffs causing a loss of €1.3 billion, and lowered its full-year sales forecast | Financial Report Insights

Volkswagen lowers its full-year sales and profit forecasts due to the impact of U.S. tariffs, marking the first assessment of the damage caused by Trump's trade war, with losses of €1.3 billion (approximately $1.5 billion) due to tariffs in the first half of 2025 alone.

As Europe's largest automaker, Volkswagen now expects its operating profit margin to be between 4% and 5% this year, down from the previously predicted range of 5.5% to 6.5%. Additionally, it has revised its full-year sales forecast from a previously expected growth of 5% to flat compared to last year.

Following this news, Volkswagen's stock price in Europe fell by more than 4%, highlighting the multiple blows faced by European automakers from trade conflicts, intensified competition from China, and regulatory pressures related to the transition to electric vehicles.

The latest financial report shows that Volkswagen's operating profit for the second quarter was €3.8 billion, a year-on-year decline of 29%. Aside from tariff factors, the company attributed the decline in performance to restructuring costs and increased sales of low-margin electric vehicle models.

Direct Losses from Tariffs

Volkswagen explicitly stated in its quarterly report that tariffs alone caused the company a loss of €1.3 billion in the first half of 2025. Since April of this year, Volkswagen and its competitors have faced a 25% punitive tariff, which has severely eroded their profitability in the U.S. market.

In response, the company warned: "There is a high degree of uncertainty regarding the further developments of tariffs, their impact, and any chain reactions." Volkswagen stated that if tariffs remain unchanged for the remainder of this year, its performance will be at the lower end of the expected range; if the tariff rate is reduced to 10%, it could reach the upper limit.

European automakers are actively lobbying EU trade negotiators to reach an agreement with the U.S. to reduce these punitive tariffs. One of the industry's proposals is to use their investments and exports in the U.S. as leverage to mitigate the impact.

Volkswagen is undergoing a significant reform, planning to lay off more than 35,000 employees by the end of the century to address the challenges posed by the industry's transformation. June's car sales data indicated a general slowdown in the European automotive industry, with Volkswagen being one of the poorer-performing manufacturers.

U.S.-EU Trade Negotiations May Bring Change

According to Wall Street Journal, media reports suggest that the agreed tariff levels in the U.S.-EU agreement are similar to those reached in the recent U.S.-Japan agreement, which includes existing tariffs, meaning that the automotive tariffs faced by the EU could be reduced to 15%. The EU may agree to such reciprocal tariffs to avoid facing higher tariffs threatened by U.S. President Trump in a recent letter. According to CCTV News, Trump announced on July 12 that a 30% tariff would be imposed on goods imported from the EU starting August 1 The US-Japan agreement brings hope for similar agreements in Europe, temporarily boosting the stock prices of automakers.

The conclusion of the US-Japan agreement has given the market a glimpse of the possibility of easing trade disputes, but the challenges facing Volkswagen remain severe. In addition to tariff pressures, the intensifying competition in the global automotive industry and the domestic regulations established by Europe to accelerate the transition to electric vehicles pose billions of euros in losses and ongoing performance pressure for European automakers