Why Volkswagen, BMW, and Other European Auto Stocks Fell on Trump’s EU Trade Deal

The Volkswagen EV reboot of its iconic minibus will face lower tariffs after President Donald Trump negotiated a trade deal with the EU. (James Lipman/Volkswagen)

The U.S. and Europe have a new trade deal that includes 15% import tariffs on many European goods, including cars. That is good news for the European auto industry, but investors didn’t react happily in Monday trading.

The deal, announced Sunday in Scotland, cuts the potential import tariff for vehicles built in the European Union by nearly half. Still, shares of Volkswagen and BMW fell by 3.6% and 3.3%, respectively, in overseas trading. Mercedes-Benz stock dropped 3.2%.

The U.S.-listed shares of Chrysler’s parent Stellantis dropped by 4.2%. Ford Motor stock dropped 1.7%. General Motors shares rose 0.1%, while the S&P 500 finished flat and the Dow Jones Industrial Average dropped 0.1%, respectively.

The European auto industry appears relieved with the deal, while still warning of higher costs for European auto makers looking to sell in the U.S.

“It is fundamentally good that EU Commission President Ursula von der Leyen and U.S. President Donald Trump have announced a framework agreement and thus averted a further escalation of the trade dispute,” said German Automotive Association President Hildegard Müller in a news release. “But one thing is also clear: the U.S. tariff of 15%, including for automotive products, will cost the German automotive industry billions annually.”

The European Automobile Manufacturers’ Association said that it was an “important step” in easing trade tensions and uncertainty, adding, “Nevertheless, the U.S. will retain higher tariffs on automobiles and automotive parts, and this will continue to have a negative impact not just for industry in the EU but also in the U.S.”

It’s possible investors were hoping for more favorable terms. It’s also possible that most of the potential for reduced tariffs was already discounted into European auto shares, especially after the U.S. and Japan agreed to a similar deal this past week.

The Monday drop leaves Mercedes stock up about 6% over the past month. Shares of Volkswagen and BMW were up about 6% and 12%, respectively. Shares of Stellantis jumped almost 12% after the Japanese deal was announced.

Automotive investors will now hold their breath waiting for deals for Mexico and South Korea, two countries GM and Ford rely on for their imports. A 15% tariff would result in significantly lower costs than the management teams have currently forecast. GM, for instance, has forecast a gross tariff impact of $4 billion to $5 billion for 2025. It hopes to offset roughly 30% of that with cost cuts and other actions.

Smaller effects from tariffs would also mean a little less pressure on car buyers looking for deals.

Write to Al Root at allen.root@dowjones.com