According to Reuters, as the implementation of U.S. tariff policies approaches, German automaker Volkswagen Group is developing contingency plans to address potential tariffs on vehicles imported from Mexico into the U.S.
Last week, the U.S. government announced that if North American-made vehicles comply with the 2020 United States-Mexico-Canada Agreement (USMCA) rules of origin, the planned 25% tariff on cars imported from Canada and Mexico will be postponed for one month.
The U.S. auto industry, which has long relied on free trade among the U.S., Canada, and Mexico, is now exploring ways to adjust supply chains in response to possible escalating trade tensions. Data from the Mexican Association of the Automotive Industry (AMIA) and the Canadian Automotive Manufacturers Association shows that about 90% of vehicles produced in Mexico and Canada are exported to the U.S.
Volkswagen brand CEO Thomas Schaefer stated that increasing production at Volkswagen's Chattanooga plant in the U.S. will take more time. Meanwhile, Volkswagen has ruled out the immediate transfer of Škoda and SEAT/CUPRA production to Mexico.
Volkswagen operates a large manufacturing facility in Puebla, Mexico, where it produces the Jetta compact sedan, Taos subcompact crossover, and Tiguan compact crossover-all primarily designed for the U.S. market, with about two-thirds of production exported to the U.S. Volkswagen's passenger car sales in the U.S. heavily depend on vehicle exports from this plant.
"We are monitoring the situation and developing alternative plans for a long-term solution," Schaefer said. "In the short term, shifting some vehicle production from Mexico to U.S. factories is not realistic."
Volkswagen brand executive David Powel confirmed that the company has not shifted any vehicle production from its Puebla, Mexico plant to the U.S. to mitigate the potential impact of U.S. import tariffs. He emphasized, "Given the uncertainty and volatility of U.S. import policies, we have not made any changes to our vehicle distribution at this time, but we are closely monitoring the situation."
Financial data shows that due to rising restructuring costs, Volkswagen Group's core brands (Volkswagen Passenger Cars, Škoda, SEAT/CUPRA, and Volkswagen Commercial Vehicles) saw profits decline from €7.27 billion in 2023 to €6.96 billion in 2024.
Amid trade tensions and high costs, Volkswagen Group-which also owns Audi, Porsche, and Bentley-reported an operating profit margin of 5.9% in 2024 and expects only a slight increase this year.
