German carmaker Volkswagen is preparing to make a major investment in its manufacturing capacity in the United States. Despite already producing some of its popular models in the United States, such as the Atlas and ID.4, this move is a strategic decision to avoid tariffs from the Trump administration.
Oliver Blume, chairman of the board of management of Volkswagen AG, told German newspaper Süddeutsche Zeitung that after a direct conversation with U.S. Commerce Secretary Howard Lutnick, the company will make a “major investment” to further expand its existing workforce of 20,000 in the United States.
According to The Guardian, Volkswagen is expected to make a greater effort in its U.S. production to help shape the Trump administration’s final tariff policy. Blume said discussions with the U.S. government focused on Volkswagen’s future, but he hoped the solution would be universal.
U.S. production status and future plans
Volkswagen currently produces the Atlas, Atlas Cross Sport, and ID.4 in Chattanooga, Tennessee. Additionally, it has International truck and bus plants in Texas, Ohio, Alabama, and Oklahoma.
Blume did not reveal specific supply chain plans, but it is possible Volkswagen could shift production of the North American Tiguan from Puebla, Mexico, to Chattanooga. Since the Tiguan shares the same MQB Evo platform as the Atlas and Atlas Cross Sport, such a move could be cost-effective.
Localizing components: However, to avoid tariffs entirely, parts must be produced domestically in domestically produced vehicles. The 1.5-liter and 2.0-liter gasoline turbo engines used in non-electric Volkswagen vehicles sold in the U.S. are manufactured in Mexico, so it’s unclear whether Chattanooga can accommodate the engine plant.
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Industry moves beyond Volkswagen
Blume is also CEO of Porsche, which is also Volkswagen. If Trump’s tariffs on European cars go into effect, the luxury automaker could face significant challenges.
Most of Porsche’s vehicles, except the Cayenne, which is manufactured in Slovakia, are made in Germany, so the entire lineup would be subject to a 25 percent import tariff.
Volkswagen’s U.S. investment plan could be used as a bargaining chip to negotiate lower EU import tariffs, since Volkswagen’s electric and SUV sales are much larger than Porsche’s.
Volkswagen isn’t the only automaker to be reaching out to the U.S. over tariffs. BMW, the most valuable auto exporter in the United States with a plant in Spartanburg, South Carolina, is also working to find a solution. Mercedes-Benz, which has a facility in Tuscaloosa, Alabama, and exports popular SUVs and EVs around the world, is also in talks with the United States.
In an unofficial capacity, EU Trade Commissioner Maroš Šefčovič was expected to discuss a fair trade deal with Minister Rutnick during a meeting of the Organisation for Economic Co-operation and Development (OECD) in Paris.
Volkswagen’s massive investment in the United States could be a turning point that goes beyond corporate strategy and could shape global trade policy and the future landscape of the auto industry. It remains to be seen how they will play out in the future.
