Volkswagen's Q1 Earnings Plunge 40% Amid US Tariffs Uncertainty

Volkswagen's earnings dropped 40% in Q1 due to higher manufacturing costs and US tariffs impacting margins. The company's operating margin fell to 3.7% from 6%. Despite leaving its outlook unchanged, VW now expects an operating return on sales at the lower end of its 5.5%-6.5% targeted range. The impact of US tariffs is a concern, and the company's luxury sports-car brand, Porsche, has also cut its profit outlook.

Porsche AG has warned that its profit margin will slip into single digits this year, with the luxury car maker citing US tariffs and weak electric vehicle (EV) adoption as key challenges. The German manufacturer expects return on sales to fall to as low as 6.5%, down from a previous projection of at least 10% [1].

The company's slumping China sales, which dropped 42% in the first quarter, have further exacerbated the situation. Porsche cited "challenging market conditions" in the country, where intense competition from domestic carmakers led by BYD Co. is cutting deeper into the market share of Western manufacturers [1].

US tariffs, which hit sales in April and will affect performance in May, are also a significant concern. The company estimates that the annual cost of tariffs could hit €2 billion, assuming no price rises [1]. President Donald Trump’s decision to impose 25% levies on imported cars puts Porsche in a bind, as it has no production capacity in North America and is entirely reliant on imports from Europe.

Porsche's vehicle sales in China plummeted 42% in the three months through March, to its worst quarterly result in the Asian nation since 2013 [1]. The impact of US trade policy, China’s economic malaise, and the EV slowdown contributed to especially weak first-quarter results. Operating profit fell 40% to €760 million from a year earlier, with the company posting its first-ever single-digit return on sales in a quarter of 8.6% [1].

Porsche also lowered its revenue outlook to as low as €37 billion, from between €39 billion and €40 billion previously [1]. Despite the challenges, the company remains focused on expanding its product portfolio with more combustion-engine and plug-in hybrid models, taking an €800 million hit this year to do so [1].

Delays and caveats to Trump’s trade policy have made it difficult for carmakers and suppliers to anticipate the full impact on their financial results this year. Automakers across Europe are trying to navigate the rising trade tensions, with Ferrari NV raising prices for some of its models in the US by as much as 10%, and Mercedes-Benz Group AG considering withdrawing sales of its entry-level vehicles from the market [1].

References:
[1] https://theedgemalaysia.com/node/753385