Volkswagen Feels the Heat as U.S. Tariffs Reshape the European Auto Landscape

It has not been the summer Volkswagen (Xetra: VOW3) was hoping for. The German auto giant came out with its second-quarter numbers and the message could not have been clearer: tariffs bite hard, and the scars are nowhere near healing. In the face of swelling U.S. import taxes, Volkswagen watched its profit slide, underscoring just how turbulent things have gotten for Europe’s carmakers as they juggle global politics, supply chain rough patches, and a pandemic hangover that refuses to disappear quietly.

Volkswagen’s latest figures tell a candid story. Operating profit for the first six months dropped to $7.3 billion (€6.7 billion). That is about one-third less than the previous year, a far cry from the sturdier results the company reported just a few quarters ago. What stands out is not just the scale of the decrease, but the reason staring everyone in the face: a stunning $1.42 billion (€1.3 billion) slate of direct costs tied to the recent ramp-up in U.S. import tariffs. These tariffs have made exporting cars to the U.S. market more expensive than ever and Volkswagen’s American business shrunk sharply as a result. 

The numbers are clear. Sales in the U.S. dropped 16% for Volkswagen this half-year, erasing hard-won gains. The revenue number looks steady at $173.2 billion (€158.4 billion), although that surface calm hides the shake-up underneath. The company had to wrestle with not only tariffs, but also a costly restructuring program and a surge in lower-margin electric vehicle sales that, while promising for the future, have not yet delivered robust profits. 

If this sounds like a lot of headwinds, that is because it is. Volkswagen’s cash flow for the first half of the year was negative $1.62 billion (€1.4 billion), which is a tough pill for investors who expect the company to run a tight ship. The carmaker even trimmed its financial guidance for the rest of 2025, now predicting revenue will likely stay flat. That is a toned-down expectation from a company that only months ago anticipated several percentage points of growth. 

It is tempting to think that this is just a Volkswagen problem, but the context is wider. European automakers as a whole are treading water in choppy economic conditions and the uncertainty does not look set to ease soon. In mid-July, U.S. President Trump ratcheted up tensions with a promise to hike tariffs on European Union auto imports to 30%, effective August 1st. This move is not just symbolic. Higher tariffs threaten the backbone of a European industry that exports $61 billion (€56 billion) in vehicles and components to the U.S. each year. Vehicles going the other way account for only a fraction of U.S. output, so the impact falls much harder on European firms. 

For Volkswagen, the pain in the United States is partly offset by gains elsewhere. South American sales are up 19% and in Western and Central Europe, business is holding steady or even ticking higher. Still, new car sales across the EU are down nearly 2% so far this year, despite Volkswagen eking out a small increase by leaning on popular models like Skoda and Cupra. Electric vehicle orders in Europe are growing briskly, but these cars are not yet the margin drivers traditional combustion models are, particularly given the investments required just to get them on the road in volume. 

The company’s future is now tied to how deftly it can adapt in a marketplace where trade rules shift with little notice. Volkswagen is not alone in urging governments to seek common ground, since escalating tariffs raise input costs, disrupt supply chains, and can leave the average consumer wondering why their next car carries a heftier price tag. 

As August looms and the next round of tariffs takes effect, Volkswagen’s challenge is simple in form but daunting in practice. The automaker must navigate a world where building cars for the global market means absorbing financial blows that can come from far outside the showroom floor. For now, every turn in the trade war story seems to show up right on Volkswagen’s balance sheet, and there are no easy shortcuts back to calm waters.