Trump tariffs: car makers struggle to mitigate loss of billions in profit

Meanwhile, car makers are throwing out parachutes to avoid the worst of the damage.

On the recent round of earnings calls, analysts pressured car makers on possible ways they could mitigate the tariff impact, but again and again, CEOs and CFOs had to point out how much of a long-term process it is to rebuild production and supply chains. 

Volkswagen said it was “evaluating” options to make more models at its Chattanooga plant in Tennessee, but CFO Arno Antlitz warned analysts on the company’s first-quarter earnings that it was “too early to say” whether such a solution was possible. 

Of the 730,000 vehicles that the Volkswagen Group sold in the US in 2024, only around  200,000 of them were produced in the US, with about 290,000 coming from Mexico and about 240,000 coming from Europe. 

Of the Group cars produced in Mexico, only Volkswagen models from the vast Puebla plant are compliant with the United States-Mexico-Canada Agreement (USMCA), which sets a 75% minimum regional value content before waiving the tariffs. Audi Q5s made in the José Chiapa plant aren’t compliant, mainly because their engines are shipped from Germany.

Like many car companies, Volkswagen has suspended its guidance (estimated financial performance) for 2025, saying it couldn’t properly assess the damage. 

Mercedes is another with a substantial production facility in the US, situated in Tuscaloosa, Alabama, where it makes big SUVs. But despite local production with a strong export focus (both key goals under the Trump regime), it will be hit hard. 

Along with the damage to exports to China, Mercedes will be hit by tariffs on engines sent to the US for SUV production to Europe.

The same problem will also affect the US production of BMW, which at the time of writing hadn’t updated its financial position after the first quarter.

“We have built up our internal-combustion-engine industrial structures in Europe over more than 100 years,” CEO Ola Källenius told investors. “To move them quickly to two other economic regions is probably prohibitive from a capital spending point of view.”

Aston Martin said it would have to raise prices to cover at least part of the tariff increase, but others warned that doing so risked ceded market share to those not so impacted.

“You can’t just push a button and say ‘okay, I have a tariff, let's just raise the price and everything stays the same’. That's not how market economy works,” Källenius said.

The bigger hit on car makers either building outside the US or with higher proportions of imported parts help those car makers more localised in the US.

“German lux brands are widely disadvantaged and so are the Koreans in the mid-level of the market,” John Murphy of investment bank BofA Securities pointed out in the GM analyst call. He suggested that Chevrolet and Cadillac could “lean into” the tariffs to take market share.

GM CEO Mary Barra agreed with Murphy wholeheartedly, saying: “There is a huge opportunity for us to continue to build and leverage our product strength and the fact that these vehicles are built in the US and have the USMCA compliance."

Stellantis is another sensing blood in the water. “We're looking at areas of opportunity where we have US-built vehicles that have very low impact from the tariffs against competitor vehicles that may be imported from places like Korea or Japan,” CFO Doug Ostermann said on its earnings call.

Three out of every five cars Stellantis sells in the US is made there, Ostermann pointed out.

All companies referenced the uncertainty ahead, particularly as the Trump administration keeps changing the parameters. The whole tariff picture could look completely different at the end of the year, making decisions extremely hard.

“I think [they will] try to mitigate some of the impacts, right, because I think they recognise that they don't want to hurt the profitability of the industry,” said Ostermann.

Companies recognise that winning over Trump is crucial to softening the worst of the impacts, so there were bizarre statements like the one from GM’s Barra declaring that she was “grateful to president Trump  for his  support of the US automotive industry” even as she was predicting a $4-5bn impact from his tariffs.