European automakers are grappling with renewed pressure after a partial easing of U.S. tariffs under a deal struck between President Donald Trump and European Commission President Ursula von der Leyen. While the agreement, reached on Sunday, reduced tariffs on European car imports to 15% from a prior punitive 25%, it still falls well short of the pre-trade war rate of 2.5%, adding billions in potential annual costs.
Germany’s automotive association VDA said the new baseline tariff would impose significant financial strain on the country’s carmakers, who count the United States as their largest non-European market. “We welcome the agreement between the EU and the U.S. in the tariff dispute and the planning security that comes with it for the European automotive industry,” Volkswagen said in a statement.
Volkswagen reported $1.5 billion in tariff-related costs during the first half of 2025 and revised down its full-year sales and profitability targets. Its premium subsidiaries, Porsche and Audi—both lacking U.S. production facilities—also cut their financial guidance on Monday, citing sustained tariff exposure.
While European auto stocks initially rallied on news of the deal, the momentum was short-lived. The European auto index (.SXAP) slipped 1.2% by 1325 GMT, led by declines in shares of Volkswagen, BMW, Mercedes-Benz, and Stellantis. Barclays analysts noted that “despite the relief of a better than worst-case tariff outcome, the removal of the upside risk of a deal is leaving the sector vulnerable for a reality check.”
Beyond tariffs, the deal includes a pledge of $600 billion in European investments in the United States, though specifics remain vague. Volkswagen CEO Oliver Blume previously indicated discussions with the U.S. Department of Commerce on a potential Audi plant and described the company’s proposal as a “very attractive investment package.”
BMW and Mercedes-Benz, which manufacture SUVs at large U.S. facilities for global export, may benefit from the European Union’s agreement to reduce its own tariffs on U.S. car imports to 2.5%, with sources suggesting the rate could fall to zero. Both firms have expressed support for a mechanism that balances imports and exports to improve trade terms.
Mercedes-Benz said it hoped for “constructive dialogue” between Brussels and Washington as further details of the agreement are negotiated. Meanwhile, industry groups continue to call for deeper efforts to eliminate trade barriers and protect Europe’s export-focused auto sector amid a costly transition to electric vehicles and fierce competition from Asian manufacturers.
Source: Reuters
