Catastrophe at Volkswagen and Mercedes: A string of calamities unfolds
Stream of Struggles for VW and Mercedes
Kickstarting 2025 on a sour note, Volkswagen (VW) witnessed a whopping 41% decline in net profit, diving down to €2.19 billion. Following a rocky 2024, this slide was announced from Wolfsburg. Beyond known multi-billion-euro charges and a decrease in earnings in China, VW's battery business also posted a heftier loss. Yet, the group's overall revenue managed a 3% surge to €77.6 billion [1].
Facing a barrage of issues like CO2 provisions in Europe, restructuring of software subsidiary Cariad, and provisions for the diesel scandal, VW's operating result fell by around 37% to €2.9 billion [2]. Adding to the woes, Mercedes-Benz isn't faring much better.
In the first quarter, Mercedes recorded a profit drop despite a decline in sales in China and withheld its yearly outlook due to unpredictable U.S. trade policies [2]. The company's operating profit plummeted by over 40% to €2.3 billion, which it described as "solid" in a dynamic market environment. The profit margin of its core Mercedes-Benz Cars division plummeted from 9.0% to 7.3% [2].
With the anticipated 25% tariffs on car imports to the U.S. (effective April 2025) and upcoming tariffs on auto parts (May 2025), both companies are grappling with squeezed margins. The tariffs, yet to be factored into full-year forecasts, have Mercedes holding back on its annual guidance [2]. These tariffs have little relieve as both companies rely heavily on European exports to the U.S. [3].
Weaker Chinese demand, intensifying competition from domestic EV makers, rising trade restrictions, volatile commodity markets, and stricter emissions regulations are further pressuring the auto industry [3]. The 40%+ year-on-year profit declines [3] in Q1 2025 point to these challenges outpacing both companies' cost-cutting efforts and pricing strategies.
- Despite Volkswagen (VW) recording a 3% increase in overall revenue to €77.6 billion, its net profit plummeted dramatically by 41% to €2.19 billion.
- Volkswagen's battery business also reported a significant loss, contributing to the decline in earnings, beyond the known multi-billion-euro charges and a decrease in earnings in China.
- Both Volkswagen and Mercedes-Benz are facing squeezed margins as a result of the anticipated 25% tariffs on car imports to the U.S., effective April 2025, and upcoming tariffs on auto parts, scheduled for May 2025.
- These tariffs, yet to be fully accounted for in full-year forecasts, have led Mercedes to hold back on its annual guidance.
- Both companies rely heavily on European exports to the U.S., adding to their struggles in the transportation and automotive industry, which is grappling with weaker Chinese demand, intensifying competition from domestic electric vehicle makers, and stricter emissions regulations, as well as volatile commodity markets and rising trade restrictions.
