Volkswagen’s high-stakes bid to win over American consumers with electric vehicles in a sluggish market was a risky endeavor from the start. But with Donald Trump’s return to the White House, the American dream looks more difficult than ever for Europe’s largest automaker.
With China’s market share nearly halved to 12% in the past five years and demand in key European markets faltering, entering the U.S. market has become more important than ever for the world’s second-largest auto group.
“The United States is our greatest hope for growth,” said a VW director in Wolfsburg. The German automaker said it would double the group’s U.S. market share, which includes brands such as Audi and Porsche, to 10% and its namesake brand’s U.S. market share to 5% by 2030.
But Trump’s promise to scrap electric vehicle subsidies and impose tariffs on foreign vehicles has cast a shadow over Volkswagen’s U.S. strategy, which focuses on electric vehicles. Even before the November election, morale at U.S. headquarters had been hit by poor U.S. sales of the ID.4, VW’s first fully electric SUV.
VW has been here before. The last attempt to win over the U.S. ended with regulators and prosecutors going after automakers who concealed emissions data. This scandal is now known as Dieselgate.
Nonetheless, there is no ambiguity in its ambition. When asked about North America, the company told the Financial Times: [that] The future will be electric.”
However, Volkswagen’s EV strategy was difficult from the start. Considered by many U.S. employees to be “the most important vehicle launch in decades,” according to a former VW executive, the ID.4 was selected for U.S. production from a large lineup of cars launched in Europe.
Expectations were high when the 2022 U.S. vehicle was launched, but many U.S. consumers deemed the ID.4 too small, with employees painting VW’s Virginia headquarters offices with “Make Volkswagen Matter Again” stickers, and sales faltered. . Despite VW’s capacity to produce up to 100,000 ID.4s per year at its Chattanooga, Tennessee plant, only 17,000 units were sold this year.
Stephanie Brinley, an analyst at IHS Markit, said she does not expect sales of the ID.4 to recover. “It wasn’t successful in America,” she said.
To make matters worse, the company was forced to halt production of the car after having to recall all 98,000 units sold in the U.S. last September due to a defect that caused some electric door handles to fail when exposed to rain. Sales are not expected to resume until early next year.
Last year, the Volkswagen brand’s domestic sales rose more than 9% to 329,000 units, but this was led by existing internal combustion engine SUVs such as the Atlas and the extra-large Tiguan.
With the group’s flagship brand already experiencing declining margins and the entire group shortfalling projected U.S. revenue by more than $1 billion, all eyes in the industry are on VW’s Americas CEO, Pablo Di Si.
But Brinley insisted it was unfair to blame him for the problem. “He is only following what the Volkswagen Group wanted, which is to place emphasis on EVs,” she said.
The German automaker did not comment on reports of growing tensions between Di Si and Wolfsburg group executives.
In what is already a difficult time for Volkswagen, analysts question how the automaker will address potential headwinds from Trump’s subsidies and tariffs.
Competition in the notoriously saturated market is expected to increase as international auto groups seek to boost U.S. sales to counter slowing demand in other regions. Stifel analyst Daniel Schwarz noted that VW’s promise to increase its U.S. market share “has been ongoing for several years.”
Volkswagen declined to comment on “the new U.S. administration’s regulatory plans,” but the incoming administration is widely expected to scrap generous government subsidies for consumers buying electric vehicles.
The German automaker said U.S. deliveries of its flagship brand of cars rose 17% year-on-year in the first three quarters despite high interest rates. [and] “Cooling Market”.
“These results demonstrate that our ambitious growth plans in the U.S. market are realistic and achievable,” the company added.
Wolfsburg executives are especially excited about the electric Scout pickup, the company’s first U.S. brand, scheduled for production starting in 2027 at its under-construction South Carolina plant.
“This is a once-in-a-lifetime opportunity to strengthen our presence in North America for the long term,” Chief Financial Officer Arno Antlitz told investors last month.
But Antlitz acknowledged that consumer anxiety about EV charging remains, adding that the Scout will also offer a gasoline “range extender” to back up the electric motor. “The transition to electric mobility in the United States is not as rapid as originally expected,” he added.
Europe’s largest automaker has made a number of significant investments to strengthen its production capacity in the United States. Earlier this month, it officially launched a software joint venture with California EV startup Rivian, increasing its investment from $800 million to $5.8 billion.
But even if the effort pays off, the U.S. is unlikely to be as profitable as China was for Volkswagen during its heyday. “There will never be another China,” said a former executive at a German car group. “The United States is a tough market with very specific characteristics and entrenched competitors.”
In addition to eliminating EV subsidies, President Trump has imposed tariffs of 10 to 20 percent on imports from all trading partners and “tariffs of 100, 200 and 2,000 percent” on Mexican-made cars assembled by Volkswagen and Audi. It is expected that it will be done. The percentages of cars sold in the United States are cents and 25% respectively.
The immediate hit from the tariffs is expected to be small for VW, as about 6% of the group’s total vehicle volumes are directly at risk from potential US import tariffs, according to analysts.
However, some brands are more vulnerable. Porsche has much greater exposure, accounting for about a quarter of all car sales in the U.S., all of which are manufactured in Germany. Audi also does not produce cars in the United States.
U.S. tariffs could also hit the VW battery gigafactory in Canada, which the company pledged to build last year to supply EVs for sale in North America. The decision was made after estimates that automakers could see an influx of $10 billion worth of subsidies from President Joe Biden’s inflation reduction law, which now faces an uncertain future.
Some auto industry executives wonder whether VW’s new effort to win over American consumers could now face another unfortunate ending.
A former US-based VW executive has questioned his former employer’s EV strategy. “It’s not just Trump who is against future EV sales, it’s the sentiment of the people who elected him,” he said.
Additional reporting by Claire Bushey in Chicago
