Trump tariff threats rattle EU automakers

EUROPEAN carmakers are bracing for likely tariffs US President Donald Trump plans to impose, with Volkswagen Group, Volvo and US-European giant Stellantis expected to be hit hardest.

The sweeping tariffs, which Trump outlined during his inauguration speech on 20 January, will apply to goods shipped to the US from Mexico, Canada and Europe, however he did not specify a confirmed levy percentage.

Trump has, however, taken to social media in the past to promise a 25 per cent tariff on Mexico and Canada if re-elected, which he now has been, suggesting the levy could fall within that range.

Ratings agency Moody’s predicts that the tariff could amount to an extra 10 per cent for European companies – up from 2.5 per cent – hitting the profit margins of carmakers that manufacture outside of the US.

The impact on European carmakers will be significant, Moody’s predicts, with Stellantis facing significant losses given 40 per cent of its vehicles sold in the US originate from Canada and Mexico.

Moody’s predicts that VW Group could see a hit to profits of up to 10 per cent for European-built models and 15 per cent for its Mexico-built stock.

VW Group brands like Porsche and Audi are also at risk. Audi builds its popular e Q5 SUV model in Mexico, while the majority of its other models are imported from Europe, and all of Porsche’s US models are built in Europe.

Volvo is also exposed, currently producing its EX90 and S60 models at its US factory in South Carolina while the remainder of its model line up is built in Europe.

The solution is to establish, or ramp up, manufacturing operations in the US – an option that may be more lucrative than a double-digit import levy for key carmakers that rely heavily on the American market.

VW Group is reportedly considering the move to US manufacturing for its Audi and Porsche brands, according to German business news source Handelsblatt.

While other VW Group brands are produced in the US, Porsche and Audi are particularly exposed by the risk of increased tariffs, with the Group’s new Scout brand factory in South Carolina cited as a potential manufacturing site.

Tariff hikes are not, however, a tactic employed only by the US as it attempts to bolster its flailing domestic manufacturing industry.

The EU has also used inflated tariffs in an attempt to give its home-grown manufacturers a leg-up.

The European Union last year voted for a move to impose tariffs as high as 45 per cent on Chinese-built battery electric vehicles, with 10 EU members backing the move, five voting against it and 12 abstaining.

Following the vote, the EU imposed tariffs that penalised Chinese manufacturers importing vehicles into European markets with levies of up to 35.3 per cent – despite several German automakers having joint ventures in China.

The move followed a sharp rise in the share of China-sourced electric vehicles sold in the EU across the past three years, growing from three per cent to more than 20 per cent.

Chinese auto-makers such as SAIC (parent of MG, LDV and others) and Geely (which controls brands including Volvo, Polestar, Lotus, LEVC, Zeekr, and Lynk & Co) face the highest tariffs, but it’s Tesla and BMW that are fighting the tariffs hardest.

This month, BMW and Tesla announced that they are suing the EU, fighting against the levies being imposed on vehicles imported from China.

Both companies filed cases at the European Union’s Court of Justice, and while further details are yet to be revealed the European Commission is reported to have indicated that the bloc will remain open to negotiation.