Volkswagen’s high-stakes bid to woo US consumers with its electric vehicles in a slowing market was a risky endeavour from the start. But with Donald Trump’s return to the White House, the American dream of Europe’s largest carmaker is looking more fraught than ever.
With its market share in China almost halving to 12 per cent in the past five years, and demand in its core European market faltering, cracking the US market has never been more critical for the world’s second-largest auto group.
“The US is our biggest hope for growth,” said one VW director in Wolfsburg. The German carmaker has said it wants to double the US market share of the group — which includes brands such as Audi and Porsche — to 10 per cent and that of its namesake brand to 5 per cent by 2030.
But Trump’s promises to scrap EV subsidies and impose tariffs on foreign-made vehicles have cast a shadow over VW’s US strategy focused on electric vehicles. Even before the November election, morale at its US headquarters had been hit by weak American sales of VW’s first all-electric SUV, the ID.4.
VW has been here before. Its last attempt to win over the US ended with the country’s regulators and prosecutors pursuing the carmaker for covering up emissions data, in a scandal now known as Dieselgate.
Despite this, there is no ambiguity over its ambitions. When asked about North America, the company told the Financial Times: “It is clear [that] the future will be electric.”
VW’s EV strategy has, however, been off to a rocky start. Regarded by many US staff as the “most important vehicle launch in decades”, the ID.4 was picked for production in the US from a larger line-up of cars launched in Europe, according to a former VW director.
Although hopes were high at the time of the 2022 launch of its US-made vehicles, with staff plastering VW’s Virginia headquarters offices with “Make Volkswagen Matter Again” stickers, many American consumers deemed the ID.4 to be too small, and sales faltered. Despite VW’s capacity to produce up to 100,000 ID.4s annually at its Chattanooga plant in Tennessee, only 17,000 have been sold this year.
Stephanie Brinley, analyst at IHS Markit, said she did not expect sales of the ID.4 to recover. “It’s not hitting the mark in the US,” she said.
To make matters worse, the company has been forced to halt production of the car after in September it had to recall all 98,000 units sold in the US due to a defect causing some electric door handles to fail when exposed to rain. Sales are not expected to resume until early next year.
While the VW brand’s sales in the country rose more than 9 per cent last year to 329,000, it was driven by conventional combustion engine SUVs such as the Atlas and the extra-large Tiguan.
With the overall group running more than a billion dollars short in expected revenue from the US at a time when margins at the group’s flagship brand are already declining, all eyes in the industry are on VW’s Americas chief executive Pablo Di Si.
Brinley, however, argued that pointing the finger at him for the problems would be unfair. “He’s only following what VW Group wanted, which is to go heavy on EVs,” she said.
The German carmaker did not comment on reports of rising tensions between Di Si and group management in Wolfsburg.
Coming at an already difficult time for VW, analysts question how the carmaker will tackle potential headwinds from Trump’s subsidy and tariff policies.
Competition in the notoriously saturated market is only expected to grow as international auto groups try to increase US sales to counter slowing demand elsewhere. Stifel analyst Daniel Schwarz pointed out that VW’s promise to grow US market share “has been there for many years”.
Although VW declined to comment on “any regulatory plans of the new US administration”, the incoming administration is widely expected to scrap generous government subsidies for consumers who buy electric vehicles.
The German carmaker said deliveries of cars belonging to its flagship brand grew 17 per cent year on year in the US, in the first three quarters “despite high interest rates [and] a cooling market”.
“These results prove that our ambitious growth plans in the US market are realistic and achievable,” the company added.
Executives in Wolfsburg are especially excited about the company’s first all-American brand — the electric Scout pick-up, which is scheduled for production from 2027 at a South Carolina plant that is under construction.
“It’s a once in a lifetime opportunity to strengthen our position in North America in the long term,” chief financial officer Arno Antlitz told investors last month.
But Antlitz acknowledged there was remaining consumer anxiety about EV charging, adding that Scout would also offer a petrol “range extender” to back-up the electric motor. “The transition to electric mobility in the US is not as fast as originally assumed,” he added.
Europe’s largest carmaker has been making several significant investments to boost its capacity in US. Earlier this month, it formally kicked off its software joint venture with the California EV start-up Rivian, upping its investment by $800mn to $5.8bn.
But even if its efforts pay off, the US is unlikely to be as profitable as China was to VW during its best years. “There will never be another China,” said a former executive of a German car group. “The US is a tough market with very particular characteristics and entrenched competitors.”
Aside from scrapping EV subsidies, Trump is expected to push for a blanket 10 -20 per cent duty on imports from all trading partners and “a 100, 200, 2,000 per cent tariff” on cars from Mexico — where VW and Audi assemble 60 per cent and 25 per cent, respectively, of their vehicles sold in the US.
The immediate hit from any tariffs are expected to be small for VW, since roughly 6 per cent of the VW group’s overall vehicle volumes are at direct risk from potential US import duties, according to analysts.
Some brands, however, are more vulnerable. Porsche is significantly more exposed, with the US accounting for roughly a quarter of its total car sales — all of which are manufactured in Germany. Audi too does not manufacture any cars in the US.
US tariffs could also hit VW’s battery gigafactory in Canada, which it last year committed to building in order to supply the EVs it plans to sell in North America. The decision was made after the carmaker estimated $10bn worth of subsidies could flow from President Joe Biden’s Inflation Reduction Act, which now faces an uncertain future.
Some car industry executives wonder whether VW’s renewed effort to win over US consumers could now face another unhappy ending.
The former US-based VW director cast doubt over his former employer’s EV strategy. “It’s not just Trump that speaks against future sales of EVs — it’s the sentiment of the people who elected him,” he said.
Additional reporting by Claire Bushey in Chicago
