Volkswagen is negotiating a tariff reduction with the US government, aiming to ease financial strain and bolster its US and electric vehicle strategies amidst ongoing trade tensions and industry challenges.
Volkswagen is pretty close to striking a deal with the US government over a tariff reduction, and honestly, that could really ease the heavy financial burden the German automaker has been feeling thanks to ongoing trade tensions. Oliver Blume, who’s the CEO of Volkswagen Group, mentioned that the company has lost “several billion euros” so far this year because of tariffs imposed by the Trump administration—these tariffs have hit especially hard on their luxury brands like Porsche and Audi. Right now, US tariffs are set at 27.5% on European vehicle imports. Blume called this rate a "burden" for the group, even after they were promised it would be reduced to 15%.
During the IAA Mobility show in Munich, Blume spoke quite openly about Volkswagen’s strategy to handle these costs. He talked about exploring options like increasing local manufacturing in the US—including a possible Audi plant—with a decision expected by the end of 2025. “We are counting on our own offer investing heavily in the US,” he said, emphasizing that negotiations are ongoing to try and get tariff rates below the current 15%, and maybe even secure some tax breaks tied to these investments. This approach fits with Volkswagen’s broader plan—how they want to invest significantly in the US market to restore a more level playing field, which the CEO described as an “asymmetric deal” between the US and EU.
Now, the company’s financial vulnerabilities are especially sharp when it comes to Porsche. Unlike some of its peers like Audi, BMW, or Mercedes-Benz, Porsche doesn’t have a big manufacturing presence in the US, which means it’s taking the full hit of import tariffs on its cars. To make matters worse, Porsche is also seeing demand weaken in China—sales have reportedly fallen sharply by around 28%. Industry analysts are pointing out that this double whammy—tariffs in the US and shrinking markets in China—puts Porsche in a sort of “sandwich position,” which is never ideal. The struggles are reflected in Porsche’s stock price, which has been under pressure and is set to be removed from Germany’s DAX blue-chip index soon, highlighting just how turbulent things are for the brand right now.
On the product side, Volkswagen is really pushing ahead with electrification as a way to revive sales and grab more market share across Europe. At the Munich event, Blume unveiled a concept for a new affordable, compact electric car, aiming to meet rising consumer demand for e-mobility. The plan is to snag about 20% of the compact electric car market in Europe—a pretty ambitious target. They want models that are both accessible and profitable. Interestingly enough, this is part of a wider industry move, as competitors like BMW are developing region-specific versions of electric SUVs, including a Chinese-market model of the iX3 that’s customized with local software and features to suit regional tastes.
The broader impact of the Trump-era trade policies is felt across the European auto industry. Beyond Volkswagen, brands like Jaguar Land Rover and Chinese-owned Lotus have announced major job cuts, partly because of economic uncertainties spun up by tariffs. Plus, the European auto sector is also facing stiff competition from Chinese automakers—brands like BYD, Changan, and GAC have almost doubled their market share in Europe, hitting about 4.8% in the first seven months of 2025. This rising Chinese presence is forcing European carmakers to rethink their strategies, especially with discussions about whether the EU’s upcoming restrictions on combustion engines are the right move, since some European executives think that timing might not be ideal given the intense market pressures.
Trade diplomacy remains a tricky subject. While the EU and US have apparently reached a tentative deal to bring tariffs down to 15%, there’s skepticism in the European Parliament. Bernd Lange, who heads up the trade committee, has expressed doubts about whether such an agreement will hold up or be fair, especially considering ongoing US tariff hikes on steel and other goods. On the flip side, the European Commission sees this as a practical step to keep trade flowing—yet opposition persists within political circles, and legal challenges continue as courts look into whether these tariffs are even lawful. Economists and industry leaders warn that these policies could harm growth, investments, and supply chains in key sectors like automotive manufacturing.
All of this underscores how complicated the situation really is—grope for trade deals, geopolitical tensions, and market shifts in China and the US all happening at once. Volkswagen’s push to localize production in the US and to accelerate its electric vehicle ambitions fits into a broader industry effort to cut down on the tariff impact and stay competitive against rising rivals. Still, the landscape remains pretty fluid. The next few months are going to be critical, really, in seeing whether Volkswagen and other European automakers can navigate this tricky trade environment and establish a new framework that supports sustained growth in a world that’s changing so rapidly.
Source: Noah Wire Services
