Al Root

Volkswagen's first-quarter earnings were bad. There's no other way to put it.

And get used to crummy numbers because this year is going to be tough for car makers because of higher costs, strained profit margins, tighter emissions regulations, and falling demand.

Late Wednesday, VW announced preliminary first-quarter results. Operating profit should be about EUR2.8 billion ($3.1 billion), down from EUR4.6 billion ($5.1 billion) a year ago. Wall Street was looking for EUR4 billion ($4.4 billion.)

Tariffs weren't even the main reason. VW took a $670 million charge related to tightening EU emissions regulations. Its hit from tariffs and diesel issues totaled $330 million.

Falling short before tariffs bite," wrote Bernstein analyst Stephen Reitman in a Thursday report.

Though tariffs weren't in effect in the first quarter, cars sold to U.S. dealers -- but not in the U.S. yet -- face levies.

"Possible full-year effects on sales revenue, earnings, and cash flow from the announced increased import tariffs, particularly in the United States of America, are still not included in the forecast, as the effects and their interactions cannot be conclusively assessed at present," according to Volkswagen's earnings news release.

Tariffs can't be assessed precisely, but they can be assessed generally. They will decimate U.S. profits, according to Wall Street forecasts. It's possible that 30% to 100% of 2025 operating profit expected by U.S. auto makers is at risk. That works out to roughly $10 billion to $30 billion.

Volkswagen is in a relatively weak position in regard to tariffs, importing about 80% of the cars it sells in the U.S., according to Bloomberg. Globally, Volkswagen delivered about nine million cars, with one million sold in North America.

In midday trading, Volkswagen's U.S.-listed American depositary receipts were down 1.4%. The S&P 500 and Dow Jones Industrial Average were down 3.1% and 2.6%, respectively.

U.S. auto makers, including General Motors, Ford Motor, and Tesla, will report first-quarter earnings in a couple of weeks.

Like the VW update, investors can expect adjustments to guidance, tariff comments, and remarks about sales in 2025. They shouldn't expect what's coming to be positive.

Write to Al Root at allen.root@dowjones.com

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April 10, 2025 11:21 ET (15:21 GMT)

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