Volkswagen, BMW, and Mercedes-Benz unveiled new EVs at Munich auto show, as German automakers struggle with U.S. tariffs and Chinese competition. Image credit: CIO DE.
(The Post News) – German automakers have one of their toughest years yet on the horizon as U.S. tariffs, falling Chinese sales, and increased production costs land on Europe’s biggest carmakers. Volkswagen, BMW, and Mercedes-Benz unveiled their new electric cars and lower-end cars at the Munich IAA Mobility show this week, set on fighting back from Donald Trump’s trade war and the Chinese aggressors on their turf.
President Trump’s 27.5% tariffs on European-imported cars, which went into effect in April, hit Germany’s automotive sector with billions of dollars in losses. The tariffs were later reduced to 15%, but that level is a suffocating burden. Volkswagen CEO Oliver Blume confirmed the tariffs cost the company “several billion euros” in one year alone, squeezing profitability at premium brands such as Audi and Porsche.
We are taking the offense,” Blume said to Reuters on Monday. “Despite tariffs and a stagnant Chinese market, we are committing more than ever to the future.”
German Automakers Seek U.S. Investment Deals
Volkswagen is also in talks with the Trump administration for new U.S. investment, such as expanding Tennessee operations and potentially localizing Audi production. Blume said only a tariff relief deal would elicit such commitments.
“We do not envision tariffs disappearing, but America must provide something first before we infuse more big-scale investments,” he said.
Porsche fares even worse. Unlike other Volkswagen brands, most Porsche models sold in the United States are produced in Germany, so the luxury automaker finds itself “sandwiched” between high tariffs and a sick Chinese market.
BMW and Mercedes are also considering how to minimize the impact. BMW has announced a China version of its iX3 SUV for 2026, with local design and software aimed at Chinese buyers. Mercedes introduced the fully electric GLC with a 443-mile range that can be charged in 10 minutes quickly.
Despite headwinds, German car manufacturers employed the Munich motor show to demonstrate engineering brawn. Volkswagen revealed its ID. Polo, a sub-€25,000 electric car for the compact class, and BMW revealed its Neue Klasse iX3 retro-styled SUV with near 500 miles of range. Mercedes focused on luxury with illuminated grille patterns and intelligent technology features such as adaptive interiors.
The latest unveilings highlight Europe’s shift to match head-to-head with Chinese carmakers, which have been quickly growing all over Europe. BYD, Leapmotor, and Xpeng all unveiled models this week, from budget hatchbacks and AI-led sedans. BYD ratified plans for production of its plug-in hybrid Seal station wagon in Hungary, underlining Chinese long-term ambitions in Europe.
“BYD is here to stay,” BYD’s executive vice president, Stella Li, said.
European manufacturers are finally rising to the challenge, experts note. “Two years ago, German manufacturers had only to respond to China’s EV onslaught. This year, they came prepared,” auto analyst Tu Le at Sino Auto Insights told reporters.
Tariffs Drive Job Cuts
The knock-on effect of the tariffs spreads beyond boardroom corridors. Germany’s auto industry has shed over 50,000 jobs over the past year as restructuring to be leaner and spend on EVs gains pace. Jaguar Land Rover and Lotus have substantially reduced jobs in the UK on the back of tariff stress and weakening sales.
But German industry holds out hope. “There is a spirit of optimism,” Mercedes CEO Ola Källenius said. “We are investing like never before, with an eye to the future.”
If that optimism lasts will depend on tariff negotiations with Washington and whether European automakers can accelerate cheap EVs faster than their Chinese counterparts. For now, the outlook is bumpy for Germany’s most iconic brands.
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