Under Tariff Pressure, European Carmakers Shift Costs to U.S. Consumers

When U.S. President Donald Trump wielded his tariff weapon against the European auto industry, the once-thriving German luxury carmakers were collectively dragged into a sharp downturn. Recent financial reports show that giants like Mercedes-Benz, Porsche, and Audi have suffered steep declines in performance during the first half of the year. This trade storm, triggered by American unilateralism, is already weighing heavily on European manufacturing.

Although the U.S. and the EU reached a trade agreement on July 27, leaders of multiple European business groups—including those in the auto sector—have condemned the deal for harming the EU economy. According to a Reuters report on July 31, some luxury carmakers such as Porsche and Aston Martin have already raised their prices in the U.S. market. This move could pave the way for other major brands to follow suit, as European automakers begin passing tariff costs onto American consumers.

Profits Take a Nosedive as Tariffs Bite

On July 31, BMW Group reported €67.7 billion in revenue for the first half of the year—down 8% from the same period last year. Net profit after tax was €4 billion, a 29% year-over-year decline. The Guardian previously cited a statement from Germany’s Mercedes-Benz, saying U.S.-imposed tariffs would cost the company €362 million. Mercedes-Benz noted that tariffs “have created significant uncertainty” and already hurt sales, with second-quarter sales dropping 9% year-over-year.

Additional the latest data shows that Mercedes-Benz’s profits were cut in half—from around €6.1 billion in the first half of last year to about €2.7 billion this year. Global sales for Q2 also fell 9% compared to the same quarter last year. The company’s core automotive business profit margin was visibly hit by tariffs—dropping to 5.1%, when it could have been 6.6% without the tariff impact. As a result, Mercedes-Benz has lowered its full-year revenue forecast, now expecting it to be “significantly below” last year’s €146 billion.

Porsche’s situation is even more dire. Operating data released on July 30 shows that its consolidated net profit for January to June 2025 plummeted 71% to €718 million. The hit was especially severe in Q2, with operating profit from its automotive business crashing nearly 91%. Tariffs imposed by the U.S. alone accounted for an estimated €400 million in added costs.

Porsche stated that to protect its customers’ interests, the company chose to “absorb the additional tariff costs itself” during the first half of the year. Oliver Blume, who serves as CEO of both Porsche and its parent company Volkswagen, admitted: “We are still far from where we want to be—and far from where Porsche should be.”

Volkswagen-owned Audi Group also saw its profit for the first half of 2025 fall sharply by 37.5% to €1.3 billion, with U.S. import tariffs responsible for around €600 million in losses. The company has since announced plans to cut approximately 7,500 jobs in Germany.

Other European automakers haven’t been spared either. Stellantis, which owns brands like Jeep and Citroën, estimates it will face around €1.5 billion in tariff-related costs for the entire year of 2025. Its performance in the crucial North American market has already fallen behind that of Europe. British luxury brand Aston Martin issued a profit warning on July 31, blaming U.S. tariffs and weak demand in Asia. The company’s sales dropped 25% year-over-year in the first half. Even Renault, whose core revenue comes from the European market, has lowered its full-year profit margin target.

Price Hikes in the U.S. Market

Reactions in Germany to the newly reached U.S.-EU trade deal have been mixed. According to Deutsche Welle, German Chancellor Friedrich Merz welcomed the agreement, saying it helped avoid a potentially devastating trade clash for Germany’s economy and auto industry. German carmakers like Volkswagen and BMW have been among the hardest hit by the U.S.’s current 27.5% import tariff on cars and components.

However, Süddeutsche Zeitung argued that the compromise reached between the EU and President Trump is still painful for Europe’s auto sector. Under the new agreement, the U.S. will impose a 15% tariff on EU vehicle imports—lower than the previous 27.5% but still significantly higher than earlier rates. Hildegard Müller, president of the German Association of the Automotive Industry, openly criticized the deal, saying it will cost European automakers billions of dollars annually and add pressure to their ongoing transition to electric vehicles.

North America remains the most important overseas market for many European carmakers. According to the European Automobile Manufacturers Association, over 20% of European auto exports go to the U.S. The impact of higher U.S. tariffs varies across companies. Although Volkswagen builds some models like the Atlas and ID.4 EVs in the U.S., it is still likely to be among the hardest-hit European manufacturers. Subsidiaries Audi and Porsche have no factories in the U.S.—all vehicles are exported from Europe or Mexico. But even Mexican-made vehicles now face a steep 15% U.S. import tariff.

BMW and Mercedes-Benz both operate factories in the southern United States, but neither produces all the models they sell in the U.S. locally. For example, Mercedes-Benz only manufactures SUV models like the GLS in Alabama, while BMW’s Spartanburg, South Carolina plant focuses mainly on large SUVs.

High-performance European sports car brands like Ferrari and Lamborghini have no production facilities in the U.S., meaning every car they sell in the American market is imported.

While some analysts argue that luxury car buyers are less sensitive to price increases caused by tariffs, the automotive industry’s value chain is highly complex and deeply international. U.S. tariffs ripple through every layer of that chain. According to the U.S. Department of Transportation, cars assembled in America are far from being fully “made in the USA.” For instance, only about 30% of the parts used in BMW’s South Carolina plant are sourced from the U.S. Under current tariff rules regarding component origin, those parts are subject to import duties.

Audi CFO Jürgen Rittersberger said during the company’s recent earnings presentation that Audi is still assessing the impact of the U.S.-EU trade deal. He did not rule out price increases in the U.S. market. Some reports suggest Audi is considering building a plant in the U.S. In parallel, a spokesperson for Volkswagen’s core brand said the group is discussing the possibility of “producing more models in North America” in the future. However, Audi has not made any final decision on this.

According to an NPR report published on July 31, Stellantis executives are also considering raising prices in the U.S. market. The report quoted American auto market analysts predicting that by 2026, U.S. tariffs could cause prices of some vehicle models sold in the U.S. to rise by 4% to 8%.

Pressure Also Coming from China

While European automakers are anxious about the 15% U.S. tariffs, they’re also feeling growing pressure from Chinese competitors. Chinese new energy vehicle (NEV) brands are gaining ground rapidly in Southeast Asia and the Middle East. At the same time, several German carmakers have recently reported declining sales in the Chinese market.

Experts from Germany’s Center of Automotive Management point out that Chinese brands are quickly moving into the premium segment, leveraging their strengths in smart technologies and local supply chains. Ferdinand Dudenhöffer, director of the Center for Automotive Research in Bochum and a well-known automotive expert, believes the main issue is that German electric vehicles simply don’t appeal to Chinese consumers. “These German cars are overpriced and lack digital features,” he said. “U.S. tariffs and China’s new tax policies on imported vehicles have only made the situation worse.”

Recently, China’s Ministry of Finance and State Taxation Administration issued a notice adjusting the consumption tax policy on ultra-luxury cars. The taxable price threshold was lowered from 1.3 million yuan to 900,000 yuan (roughly from $180,000 to $125,000), and the scope was expanded from gasoline cars to also include electric and fuel cell vehicles. This means NEVs are now also subject to the luxury tax. According to Dudenhöffer, the models most affected by the new policy are the very ones where German brands have traditionally had a stronghold in China.

Bratzel, an auto expert at the Center of Automotive Management in Bergisch Gladbach, noted that conditions have become increasingly difficult for German automakers. He’s been watching Chinese manufacturers target German premium brands for years. “These companies are more innovative and offer lower prices,” he said. “German firms must step up—make their products more appealing and be more innovative than the competition.”