Europe’s automakers were huge beneficiaries of globalization, but now the hangover has arrived — and Porsche AG and Volvo Car AB look particularly sickly.
On Monday, Porsche cut its full-year earnings guidance for the second time in as many months; its operating-profit margin is now expected to shrink to as low as 6.5% in 2025, a woeful level for a company that aspires to compete with the far more profitable Ferrari NV.
Meanwhile, Volvo Cars on Tuesday withdrew its financial guidance for 2025 and 2026 after achieving a meager 2.3% profit margin in the first quarter; the Swedish manufacturer announced a cost-cutting program worth 18 billion SEK ($1.9 billion), and spoke of the necessity of adapting “to a more regionalized world.”
This pair certainly won’t be the last automakers to reduce earnings expectations or announce job cuts, but they’re among the most vulnerable to the punishing shifts buffeting the industry as the the Chinese and US auto markets bifurcate, and shipping vehicles and components back and forth across borders becomes prohibitively expensive.
In an environment of increasing tariffs and intensifying competition in China, plus the markedly different speeds at which countries are adopting electric vehicles, automakers that have a more regionally focused sales footprint are comparatively advantaged: A majority of Renault SA’s vehicles sales are in Europe and it doesn’t sell in the US, for example, hence its profits have so far proven quite resilient.
When they went public in 2021 and 2022, respectively, Volvo and Porsche emphasized their premium credentials, but they’ve proven to be much less resilient than investors may have thought. Worryingly, their profits have collapsed even before the full impact of US tariffs has been felt.
While Porsche cited a number of one-off impacts for its earnings shortfall, its ambitions to remain a force in China look to be over — the company sold fewer than 10,000 cars there in the first quarter, or around two-thirds fewer than it did in the same period two years ago. Its Taycan and Macan electric vehicles are simply far too expensive compared to technologically impressive Chinese offerings.
The German automaker now faces the risk of a sales decline in the US, too, because the vehicles it sells there are all built in Europe. While it may be able to cushion some of the 25% tariff impact by hiking prices for the 911 sportscar, its customers probably aren’t prepared to fork out a lot more for a Cayenne or Macan SUV. Due to uncertainty about how long Trump’s automotive levies will remain in force, Porsche’s full-year guidance only includes their impact for April and May, so this might not be the last time it’s forced to adjust its forecasts.
Volvo is fortunate in having a more international production footprint, but its US factory is underutilized. The Swedish manufacturer recently began building the compact electric EX30 SUV in Belgium to avoid European tariffs on Chinese autos. However, the only Volvo model currently produced at its US plant is the electric EX90 SUV, hence it’s now exploring adding a model with a combustion engine. As part of the overhaul, Volvo aims to grant more autonomy to its operations in the Americas and China.
Alas, tariffs aren’t the only US headache for Volvo. It’s still unclear whether as a Chinese-owned manufacturer — Volvo’s majority shareholder is Zhejiang Geely Holding Group Co. — it can even keep selling cars in the US under Washington’s new cyber security rules.
It doesn’t help that both automakers have also experienced considerable management upheaval. Former Chief Executive Officer Hakan Samuelsson recently rejoined Volvo following Jim Rowan’s departure in March; meanwhile, Porsche’s chief financial officer and its sales chief stepped down in February. There remains a big question mark about whether Porsche CEO Oliver Blume’s dual role as CEO of Volkswagen AG is one role too many.
While the shares of both companies now reflect a lot of pain — Volvo and Porsche have declined 80% and 64% from their respective peak valuations — I don’t blame investors for giving them a wide berth . Whether or not Trump ultimately grants the automotive industry some slack, deglobalization isn’t going away — and it looks especially painful for Europe’s automakers.
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