European automakers face mounting pressure on profitability and sales following new tariff measures promoted by Donald Trump, according to an analysis published by Scope Ratings. The agency said the proposed US tariffs targeting vehicles produced in the European Union are expected to reduce margins and intensify operational challenges for manufacturers dependent on exports to the United States.

Scope Ratings warned that the tariff plan could further weaken an industry whose credit outlook already remains negative. The agency estimated that tariff-related pressures reduced European automotive sector EBIT margins by between 100 and 150 basis points during 2025. The strain comes alongside rising competition from Chinese automakers, which has contributed to declining deliveries and earnings across several European manufacturers.

The United States is considering a 25% tariff on vehicles manufactured in the European Union, a measure that would contradict a framework agreement reached between Washington and Brussels in July. Vehicles assembled by European manufacturers at US plants would be exempt, leaving exporters without local production capacity more vulnerable to trade restrictions.

Volkswagen Shows Highest Exposure to Tariffs

Volkswagen Group was identified by Scope Ratings as one of the companies most exposed to the new tariff environment due to its limited manufacturing capacity in the United States. Through brands including Audi and Porsche, the group recorded a 20% decline in US sales in 1Q26 compared with the same period a year earlier.

Company sources cited by Audi said the brand is “seriously” evaluating production at Volkswagen’s Chattanooga, Tennessee, plant to remain competitive and avoid tariffs. The facility currently assembles the Volkswagen Atlas and the electric ID.4, following the end of Passat production in 2022.

Scope Ratings noted that several competitors have stronger industrial footprints in North America. BMW operates its Spartanburg, South Carolina, facility, described as the largest European-owned vehicle plant in the United States, with annual production of nearly 400,000 units. Mercedes-Benz maintains a plant in Tuscaloosa, Alabama, with capacity for approximately 260,000 vehicles annually.

Stellantis, owner of brands including Chrysler, Fiat, Jeep, and Ram, benefits from production distributed across Canada and Mexico, providing temporary protection against tariff exposure. However, the company has announced plans to expand investment in US manufacturing over the next decade to reduce vulnerability to trade policy changes.

Earnings Decline Across Major Manufacturers

According to Scope Ratings, most major European automakers reported profit declines in 1Q26, driven by lower vehicle deliveries, intensifying competition from Chinese manufacturers, economic effects linked to Middle East tensions, and tariff-related pressure on corporate balance sheets.

German manufacturers recorded the sharpest reductions in net profit. Volkswagen Group earnings declined 28.4% year over year, while BMW reported a 23% decrease and Mercedes-Benz posted a 17.2% drop. Deliveries declined both globally and in China, where European brands continue to face strong competition from domestic automakers.

Despite these pressures, Mercedes-Benz and Stellantis increased sales volumes in the United States, while BMW limited its decline to approximately 4%. Scope Ratings said Mercedes-Benz benefited from strong demand for sport utility vehicles, allowing the company to gain market share despite broader industry contraction.

Some manufacturers reported improved results tied to specific operational factors. Spanish automaker SEAT and its performance brand Cupra posted an operating profit of €43 million (US$46.5 million) in the first quarter, representing a 760% increase year over year. The company attributed the result to “strict control of costs and indirect expenses” and the elimination of Chinese tariffs on the Cupra Tavascan model.

Scope Ratings added that trade tensions are coinciding with new supply-chain risks linked to the Iran crisis and the closure of the Strait of Hormuz. The agency warned that these disruptions could limit access to strategic materials such as helium and petrochemical inputs used in plastics, paint, and rubber manufacturing, increasing operational risks across the global automotive industry.

Audi said a potential increase in US tariffs on European car imports could have a “significant” impact on its operations as the company prepares to launch a new flagship SUV in the United States this summer. Speaking in Berlin, Juergen Rittersberger, Audi’s chief financial officer, said the automaker is evaluating the proposed 25% tariff on vehicles imported from the European Union. Although the measure has not been finalized, he noted that tariff uncertainty is already affecting financial planning and operational decisions tied to the upcoming launch.