Trump’s tariffs mean more cost-cutting at Volkswagen

U.S. President Donald Trump’s trade war is putting Volkswagen’s globalization strategy — and profits — at risk.

The danger was highlighted Tuesday when the German carmaker released its 2025 results, showing a sharp 53.5 percent drop in operating profit to €8.9 billion. CEO Oliver Blume blamed the firm’s worst result in a decade on the Trump tariffs, stiff competition in China, and a strategy reversal at luxury subsidiary Porsche.

VW spent decades building a global supply chain, but the new era unleashed by Trump’s trade wars and the rapid decline of the carmaker’s Chinese market are calling that strategy into question.

One example of how the old approach no longer works is the carmaker’s extensive production in Mexico, where costs are lower and a free trade agreement gave it access to the United States. Trump’s 27.5 percent tariffs on all goods from Mexico have now blocked that pipeline.

“We have a strong localized footprint in Mexico. It’s no longer worthwhile to export them from Mexico into the U.S.,” Blume said in a call with media.

Another setback is Porsche. The luxury cars are all made in Europe, exposing them to the full force of U.S. tarrifs.

Volkswagen now expects revenue for this year to stay flat or grow by a mere 3 percent.

“We are operating in a fundamentally different environment,” Blume said.

The stagnating growth means Germany’s flagship automaker will continue to cut costs and jobs, including the politically fraught task of shuttering factories at home.

The carmaker also has to battle to protect its key European market from Chinese encroachment.

With the U.S. effectively blocking Chinese cars thanks to steep tariffs and a ban on connected cars, Beijing’s carmakers are on the hunt for new customers — and have set their sights on Europe.

“We will need to do more because our costs are still too high in Europe, and we have to pitch ourselves against our competitors in Europe,” Blume said, adding that includes Chinese brands “because it’s a big business potential here for the Chinese in Europe so we have to fight back.”

Volkswagen and its German peers have strong brand loyalty in their home market, but Blume warned it’s only a matter of time before Chinese automakers begin making inroads.

It’s a war Volkswagen is already fighting in China, which was once its biggest market and revenue stream. However, the shift to electric vehicles and Chinese consumer preferences for domestic brands has chipped away at Volkswagen’s standing. VW is launching new EVs in China this year as it looks to regain its place as the country’s top automaker.

But losing its place at the top of the podium in China has meant considerably less revenue is making its way back to Germany and helping to fund factories that have higher energy and worker costs.

In 2024 Volkswagen announced cost-cutting measures that led to 35,000 lost jobs and the closure of German factories for the first time in its history.

That number will now balloon to 50,000 jobs in Germany by 2030, with the cuts affecting all of its brands including Audi and Porsche.

The EU’s rearmament push offers a potential silver lining, though, as arms-makers look to take advantage of slack demand in the auto industry combined with the sector’s mastery of mass production.

“No solution has been taken,” Blume said in reference to VW’s Osnabrück factory, which could be shuttered. “We’re currently in talks with defense companies throughout the course of the year.”