European automakers are reeling from tariff threats

European automakers are reeling from tariff threats

European carmakers faced a turbulent day on Tuesday, with shares falling across the sector in response to President-elect Donald Trump’s sweeping tariff announcement, Stellantis revealed plans to close its historic Luton plant and frustrations emerged on the EU’s stringent emissions mandates.

Trump’s tariffs threaten supply chains

Trump’s promise to impose 25% tariffs on imports from Mexico and Canada, along with a 10% tariff on Chinese goods, sent shockwaves through the global auto industry. Mexico, a major center for auto manufacturing, exported 1.57 million vehicles to the United States between January and July this year, many of those vehicles produced by European automakers.

Stellantis and Volkswagen are among the most exposed to the proposed tariffs. Stellantis relies on Mexico for 30% of its North American sales, producing high-margin vehicles such as Ram pickups and Jeep Compass SUVs at its plants in Saltillo and Toluca. Analysts estimate that the tariffs could reduce Stellantis’ pre-tax profits by more than 3.6 billion euros if fully implemented. Volkswagen, which imports 41% of its vehicle volumes into the United States from the Puebla factory, would face significant cost increases for models such as the Jetta and Tiguan.

Tariffs also threaten to disrupt integrated supply chains. The United States imports nearly four times as many auto parts from Mexico as it does from Europe, meaning the auto sector could face widespread production delays and cost increases. While some manufacturers may move production to the United States to mitigate the impact, such a move would require significant investments during an already challenging market crisis.

Stellantis closes Luton plant amid electric vehicle push

In the UK, Stellantis has announced plans to close its Luton plant in April 2025, putting 1,100 jobs at risk. The closure marks the end of 120 years of vehicle manufacturing in Luton, a decision driven largely by the UK’s zero-emission vehicle (ZEV) mandate. The mandate calls for 22% of all new vehicle sales to be electric in 2024, rising to 80% by 2030, with non-compliance fines of £15,000 per vehicle. Stellantis cited these pressures as central to its decision.

The company plans to consolidate operations at its Ellesmere Port plant, the UK’s first all-electric battery manufacturing site, where it is investing £50m to expand production of medium-sized electric vans. Although hundreds of Luton workers could be relocated, unions and local leaders have condemned the decision, describing it as a “slap in the face” for the community. Stellantis’ move reflects a broader trend of automakers scaling back operations amid financial distress, with Ford and Volkswagen also announcing job cuts and plant closures.

Scholz opposes EU fines in the context of the growing challenges of the sector

German Chancellor Olaf Scholz has criticized EU emissions fines that penalize carmakers for failing to meet net-zero emissions targets. Under current EU rules, manufacturers must reduce emissions by 15% by 2025, rising to 55% by 2030, with fines of 95 euros per gram of CO2 above the limit per vehicle. Scholz argued that these funds would be better reinvested in modernizing production to meet emissions targets.

The auto sector, which accounts for 5% of Germany’s GDP, has expressed growing frustration over the fines, which come at a time of faltering consumer demand for electric vehicles (EVs). In the UK, BEVs accounted for just 18.1% of new car sales in October, well below the 22% target for 2024. Stellantis and other manufacturers have lobbied for greater flexibility in emissions targets , warning that failure to adapt regulations could lead to further closures and job losses.

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