There is a general consensus that Trump’s 25% tariff on Mexico tariffs would impact Volkswagen’s EBIT by around 2.5 billion euros
- Trump has announced 25% tariff on all imports from Mexico and Canada.
- Some analysts such as Philippe Houchois of Jefferies and Daniel Roeska of Bernstein have downplayed the impact of the tariff’s on Volkswagen due to its positioning.
- However, according to Mexico’s statistics agency, Volkswagen exported 526,535 vehicles to the US from Mexico last year, around 50% of Volkswagen’s North America sales.
- Others such as Jose Asumendi of JPMorgan, RBC and Stifel analysts believe that the tariff’s pose a risk to Volkswagen’s earnings.
- According to RBC, the tariff will affect 600,000 Volkswagen Group units and reduce its EBIT by 9%.
- Stiffel projects that the tariff could reduce Volkswagen’s 2025 revenue and operating income by 8 billion euros and around 12% respectively.
- Moody’s expects the Mexico tariff to lead to an headwind of 15% on Volkswagen’s profits.
- Volkswagen doesn’t produce any units in Canada. However, it was planning to start producing battery cells in a €4.8 billion plant in St. Thomas. Only site preparations have been done at the plant and US sites had been considered. Volkswagen is set to receive federal subsidies amounting to $8-$13 billion over 10 years by building the plant in Canada. However, this subsidy will only be in place as long as the U.S. Inflation Reduction Act remains in force. President Trump has already suspended the Inflation Reduction Act (IRA) funding disbursements. Andreas Schotter, a professor at Western University’s Ivey business school said the 25% tariff will make the St. Thomas investment unattractive for Volkswagen since batteries account for about 60% of an EV cost.
Assessment
My analysis also established that the 25% tariff will likely lead to an headwind of around 8.3 billion euros on Volkswagen’s 2025 revenue. However, this doesn’t consider other things such as the general impact on US consumers that these tariffs would cause and competitive dynamics. If we go by analysts estimates that the tariff will cut 2025 operating margin by 9%-15% (12% at the midpoint), the EBIT headwind will be around 2.5 billion euros.
While the tariff is unlikely to cause much losses for Volkswagen in Canada, a pause in investment will interupt Volkswagen’s electrification agenda. Similarly, shifting the plant to the US will not be advantageous in any way due to Trump’s attack on IRA.