According to Bloomberg, Audi, the premium brand under Volkswagen Group, has decided to postpone its price increase plans in the U.S. market due to a continued decline in sales. The company announced that it will not raise prices in the U.S. in July. Latest data shows that Audi's U.S. sales fell by 19% year-over-year in the second quarter of this year-marking the sixth consecutive quarter of declining sales in the country. Audi attributed the drop to a challenging economic environment and its ongoing product renewal cycle.
U.S. President Donald Trump's tariff policies have significantly increased costs for export-oriented German automakers. In June, Hildegard Müller, President of the German Association of the Automotive Industry (VDA), estimated that tariffs imposed by President Trump on imported vehicles added roughly €500 million in extra costs for German automakers in April alone, specifically related to exports to the U.S. This has prompted many automakers to consider relocating part of their production to the United States.
Like Porsche, another luxury brand under the Volkswagen Group, Audi has yet to establish a production facility in the U.S. Currently, its best-selling model in the U.S. market-the Q5 SUV-is still imported from Mexico. Notably, Q2 sales of the Q5 in the U.S. dropped sharply by 29% compared to the same period last year.
However, avoiding tariffs is not the only reason German automakers are reconsidering domestic production. Rising labor costs in Germany have become a major threat to the long-term sustainability of the industry. A recent study by consulting firm Oliver Wyman shows that the average labor cost per vehicle in Germany-including wages, pension contributions, and other benefits-is around $3,300, while in the U.S., the average is approximately $1,340.
In response to these challenges, Audi is currently evaluating the feasibility of launching local production in the U.S. In May, the company announced that it would select a site for a new factory within the year. Audi CFO Jürgen Rittersberger stated at the time that the company is assessing potential capacity synergies with Scout, another brand under Volkswagen Group, and is also considering utilizing the existing Volkswagen plant in Tennessee.
Amid weakening demand in the Chinese market, German luxury automakers such as Audi, Mercedes-Benz Group, and BMW Group are under increasing pressure to maintain their market share in the United States. Chinese domestic brands, led by BYD, are rapidly gaining favor among local consumers due to their competitive pricing and advanced automotive technologies. This shifting market landscape is forcing German luxury brands to reassess their global strategic positioning.
Additionally, in June, Audi revealed it had revised its earlier plan to completely phase out internal combustion engine (ICE) models by 2033. The company now intends to adopt a more flexible approach based on market developments. CEO Gernot Döllner stated that Audi will launch a series of new ICE and plug-in hybrid models between 2024 and 2026, providing operational flexibility for at least the next 7 to 8 years-and possibly up to a decade. Originally, Audi had planned to stop developing ICE technology by next year and had announced it would cease introducing new ICE-powered models starting in 2026.
