Volkswagen Hit Hardest by US Tariffs, EV Policy Shift

Volkswagen Group is bearing the brunt of industry-wide turmoil and shifting U.S. political winds more severely than its rivals. The German automaker reported a stark 20% decline in sales in the United States during the final three months of 2025. This downturn is attributed to a confluence of factors, including punitive tariffs, escalating trade conflicts, and the abrupt withdrawal of government incentives designed to promote electric vehicles.

Policy Divergence Creates Headwinds

The U.S. automotive market is increasingly diverging from global trends, creating significant obstacles for foreign manufacturers. While electric vehicle sales are robust in markets like China and Europe, they are faltering in the United States following policy changes that now favor fossil fuels. This divergence complicates efforts for foreign carmakers to design models appealing to both American and international consumers, while also fending off aggressive Chinese competitors gaining ground in Asia and Europe.

Tariffs Squeeze Margins

Beyond policy whiplash, Volkswagen and other importers are disproportionately affected by President Donald Trump's tariffs on imported cars and parts. These levies directly increase costs, forcing Volkswagen to make difficult choices: either raise prices and risk further sales erosion, or absorb the costs and sacrifice profitability. The auto tariffs are expected to remain in place, irrespective of potential Supreme Court rulings on other tariffs based on separate legislation.

Long Quest for U.S. Market Share

These difficulties represent the latest setback in Volkswagen's long-standing ambition to establish a significant presence in the United States. Globally, Volkswagen ranks second only to Toyota Motor in vehicle sales volume. However, it remains a niche brand in the U.S., selling 330,000 vehicles last year, a decrease from 2024. In sharp contrast, Toyota sold over 2.1 million vehicles in the U.S. in 2025, with its luxury Lexus brand adding nearly 400,000 sales. Hyundai Motor, based in South Korea, also navigated these headwinds successfully, reporting an 8% increase in U.S. sales to 900,000 cars.

Financial Repercussions

Volkswagen's struggles in the U.S. mirror broader financial challenges. The company announced a loss of 1.1 billion euros ($1.25 billion) in the third quarter of 2025, partly blaming tariffs for the deficit. Other German luxury automakers are also feeling the pressure; Mercedes-Benz vehicle sales reportedly fell about 10% last year, though official 2025 figures are pending. BMW experienced modest growth, but a late-quarter decline may signal future difficulties.

EV Bet Falters Amid Policy Reversal

Volkswagen's strategic pivot towards electric vehicles to capture greater U.S. market share has been undermined by policy reversals. After investing in U.S. EV manufacturing, the company saw sales of its ID.4 model plunge 60% in the fourth quarter following the elimination of federal tax credits. The current market favors hybrid vehicles, a segment where Volkswagen currently lacks offerings in the U.S. Analyst Erin Keating noted that Volkswagen's positioning in the evaporating middle market, squeezed between luxury and value segments, exacerbates its challenges.