Volkswagen cuts 2025 guidance after $1.5-billion tariff hit in first half
Global automakers have booked billions of dollars of losses and some have issued profit warnings due to U.S. import tariffs. The European industry is also facing stiffening competition from China, and domestic regulations aimed at speeding up the electric vehicle transition.
Volkswagen, Europe's biggest carmaker, now expects this year's operating profit margin between 4% and 5%, compared witha previous forecast of 5.5% to 6.5%. Full-year sales, earlier seen up to 5% higher, are expected to be level with the previous year.
Volkswagen shares dropped by as much as 4.6% in early Friday trade, before recovering as the day progressed. They were 1% higher at 1305 GMT.
Investors had largely anticipated a guidance cut, after the company held off on assessing the damage of tariffs in the previous quarter, and appeared calmed by assurances that the group's luxury brands Audi and Porsche would recover next year following heavy losses in the second quarter.
CEO Oliver Blume told investors the company must accelerate its cost-cutting efforts in response to the tariffs.
'We need to shift our cost efforts into high gear and accelerate implementation. After all, we cannot assume that the tariff situation is only temporary,' Blume said.
Tariff response
Volkswagen and its competitors are pressing European trade negotiators to strike a deal to reduce a 25% U.S. tariff they have faced since April.
EU diplomats have indicated that the bloc could be moving towards a broad 15% tariff as it seeks to avoid a threatened 30% levy from August 1. A deal struck between the U.S. and Japan earlier this week raised hopes for a similar agreement for Europe, boosting carmakers' shares.
Finance chief Arno Antlitz said Volkswagen's profit margin would roughly land in the middle of its guidance with a Japan-style deal, which had a 15% tariff rate.
He warned, however, that the clock was ticking on finding a deal. 'We are already in July, so the longer we go into the second half of the year, the more we tend to the lower end of the guidance,' he said.
Antlitz declined to comment on price increases when pressed by investors on how the company planned to protect its margins against tariffs.
Volkswagen reported an operating profit of 3.8 billion euros in the quarter ended June 30, down 29% on the previous year, citing tariffs and restructuring costs, as well as higher sales of lower-margin all-electric models.
While Volkswagen was able to boost deliveries globally by 1.5% in the first six months of 2025, the group saw a decline ofalmost 10% in deliveries to the United States.
North American sales revenue accounted for 18.5% of the carmaker's global sales in the first half.
Car sales data for June highlighted a broader slowdown in Europe's struggling auto sector - and showed Volkswagen among the laggards as the company undergoes a major overhaul to cut over 35,000 jobs by the end of the decade.
Porsche and Audi are particularly exposed to U.S. tariffs given they have no production there, and rely heavily on exports.
In the second quarter, Porsche's operating result plunged by over 90% to 154 million euros and Audi's by 64% to 550 million.
'For both companies, Audi and Porsche, we are expecting that we will touch the bottom this year with positive momentum from 2026 onwards,' Blume said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
23 minutes ago
- Business Recorder
US Fed opens policy meeting, set to hold rates steady
WASHINGTON: The US Federal Reserve opened its two-day policy meeting Tuesday, with the central bank widely expected to hold off on further interest rate cuts despite fierce political pressure from President Donald Trump to slash levels. Fed policymakers have kept the benchmark lending rate unchanged since their last rate reduction in December, as officials wait for clarity on how Trump's tariffs are impacting the world's biggest economy. Their patient approach has riled the president, who has chastised Fed Chair Jerome Powell on multiple occasions, calling him a 'numbskull' and a 'moron.' On Tuesday, the Fed said in a statement that its policy meeting started at 9:00 am US Eastern time (1300 GMT) as scheduled. Fed poised to hold off on rate cuts, defying Trump pressure The case for holding interest rates steady at a range between 4.25 percent and 4.50 percent this week has been made by several Fed speakers, said JP Morgan chief US economist Michael Feroli in a recent note. Inflation remains above the Fed's longer-term target of two percent, risks still persist and the labor market is near full employment, he added. The Fed has signalled it is waiting on the effects of Trump's sweeping tariffs on allies and competitors alike to begin to show up in economic data. As the central bank mulls changes to monetary policy, officials are seeking a balance between price stability and maximum employment. Analysts are expecting to see some dissent from Fed policymakers at the end of their meeting Wednesday, given that a couple of officials have signaled openness to rate cuts as soon as in July. 'It will be interesting to watch whether Powell alludes to some potential policy easing before year-end' or if he avoids explicit forward guidance given differences among the Fed's rate-setting committee, said EY chief economist Gregory Daco. 'With no imminent need to act, and a fractured FOMC facing asymmetric risks, the Fed will likely wait until September to deliver the next 25 basis points rate cut,' Daco added, referring to the Federal Open Market Committee. The Fed said Governor Adriana Kugler would not be attending the meeting 'due to a personal matter.'
Business Recorder
23 minutes ago
- Business Recorder
US stocks add to records after merger announcements
NEW YORK: Wall Street stocks mostly rose early Tuesday, adding to records following major merger announcements in the energy and rail sectors as markets look ahead to a Federal Reserve decision on interest rates. The mergers come in a busy news week that features earnings from tech giants and the Fed meeting. Markets are also monitoring US trade talks with China after President Donald Trump announced a trade accord with the European Union on Sunday. 'The Fed and profits are probably key in the near term and that's what investors are most likely going to be focusing on,' said CFRA Research's Sam Stovall. About 15 minutes into trading, the broad-based S&P 500 gained 0.2 percent to 6,401.42. S&P 500, Nasdaq off records peaks as Wall St braces for high-stakes week The tech-rich Nasdaq Composite Index climbed 0.5 percent to 21,273.15, while the Dow Jones Industrial Average dropped less than 0.1 percent at 44,818.77. Both the S&P 500 and Nasdaq ended at records on Monday. Markets have been in a bullish mode, greeting benign US economic data as Trump's trade accords avoid worst-case tariff outcomes. Union Pacific announced it will be acquiring Norfolk Southern for $85 billion, creating a transcontinental railroad intended to boost freight rail efficiency. Union Pacific rose 0.1 percent while Norfolk Southern fell 1.4 percent. Oil services company Baker Hughes said it would acquire Chart Industries for $13.6 billion, adding assets in natural gas, data centers and decarbonization. Baker Hughes dropped 2.3 percent while Chart surged 15.9 percent.
Business Recorder
an hour ago
- Business Recorder
IMF lifts 2025 global growth forecast on tariff distortion
WASHINGTON: The IMF raised its global growth forecast Tuesday as efforts to circumvent Donald Trump's sweeping tariffs sparked a bigger-than-expected surge in trade, while the US president stepped back from some of his harshest threats. But the International Monetary Fund still sees growth slowing this year, even as it lifted its 2025 projection to 3.0 percent – up from 2.8 percent in April – in its World Economic Outlook update. In 2024, global growth came in at 3.3 percent. Looking ahead, the IMF expects the world economy to expand 3.1 percent next year, an improvement from the 3.0 percent it earlier predicted. Despite the upward revisions, 'there are reasons to be very cautious,' IMF chief economist Pierre-Olivier Gourinchas told AFP. 'Businesses were trying to frontload, move stuff around, before the tariffs were imposed, and so that's supporting economic activity,' he said. 'There is going to be payback for that. If you stock the shelves now, you don't need to stock them later in the year or into the next year,' he added. World Bank slashes global growth forecast as trade tensions bite This means a likelihood of reduced trade activity in the second half of the year, and into 2026. 'The global economy has continued to hold steady, but the composition of activity points to distortions from tariffs, rather than underlying robustness,' the IMF's report said. Since returning to the White House, Trump has imposed a 10 percent levy on almost all trading partners and steeper duties on autos, steel and aluminum. But he paused higher tariffs on dozens of economies until August 1, a significant delay from April when they were first unveiled. Washington and Beijing also agreed to lower for 90 days triple-digit duties on each other's goods, in a pause set to expire August 12, although talks that could lead to a further extension of the truce are ongoing. Trump's actions so far have brought the US effective tariff rate to 17.3 percent, significantly above the 3.5 percent level for the rest of the world, the IMF said. US inflation hit Among major economies, US growth for 2025 was revised 0.1 percentage points up, to 1.9 percent, with tariff rates anticipated to settle at lower levels than initially announced in April. The US economy is also set to see a near-term boost from Trump's flagship tax and spending bill. Growth for the euro area was adjusted 0.2 percentage points higher to 1.0 percent, but this partially reflected a jump in Irish pharmaceutical exports to the United States to avoid fresh duties. Among European economies, Germany is still expected to avoid contraction while forecasts for France and Spain remained unchanged at 0.6 percent and 2.5 percent respectively. While the IMF anticipates global inflation to keep declining, with headline inflation cooling to 4.2 percent this year, it warned that price increases will remain above above target in the United States. 'The tariffs, acting as a supply shock, are expected to pass through to US consumer prices gradually and hit inflation in the second half of 2025,' the IMF report said. Elsewhere, Trump's duties 'constitute a negative demand shock, lowering inflationary pressures,' the report added. China challenges Growth in the world's number two economy China, however, was revised sharply upwards by 0.8 percentage points to 4.8 percent. This reflects stronger-than-expected activity in the first half of 2025, alongside 'the significant reduction in US-China tariffs,' the IMF said. But Gourinchas warned that China is still experiencing headwinds, with 'fairly weak' domestic demand. 'There is relatively little consumer confidence, the property sector is still a black spot in the Chinese economy, it's not been completely addressed,' he added. 'And that is resulting in a drag on economic activity going forward.' Meanwhile, growth in Russia was revised 0.6 percentage points down, to 0.9 percent. This was in part due to Russian policies, but also oil prices which are set to remain relatively subdued compared to 2024 levels, Gourinchas said. 'That is a source of revenues for the Russian economy, and that's also weighing down on their economic prospects,' he added.
