Volkswagen pulls back on US auto factory plan

Volkswagen Group has shelved a proposal to build an Audi production plant in the United States, citing US President Donald Trump's import duties and a volatile trade climate as reasons.

In an interview with German business publication Handelsblatt, Volkswagen's chief executive, Oliver Blume, said levies drained 2.1 billion euros ($2.5 billion) from the company in the first three quarters of last year, making a US Audi facility economically untenable.

The disclosure undercuts Trump's tactic of wielding tariffs to push overseas businesses to relocate capital and production to the US.

Audi is particularly vulnerable to duties because it lacks a US manufacturing base. In negotiations for the EU-US trade deal reached in August, Brussels managed to reduce the rate of tariffs to 15 percent from 25 percent but could not get them lowered further.

"With unchanged tariff burdens, a large additional investment is not financially feasible," Blume told the publication. "Reduction of costs in the short term and reliable business conditions in the long term are what we need."

Volkswagen has pursued talks with the Trump administration over incentives, including reduced duties, to attract Audi manufacturing to the US, but Blume said the negotiations have produced no tangible outcome.

"This is about economic logic. Investors creating jobs and value, that needs advantages in terms of costs," he said.

He added that his talks to date with the Trump administration had been "always fair and constructive, but we've not come to a solution so far".

Most of the roughly 200,000 Audis sold in the US each year come from Europe, while the Q5 SUV model, which is built at the brand's plant in Mexico, is the exception, reported The Daily Telegraph.

Vehicles shipped from Mexico to the US now incur a 25-percent duty unless they comply with strict rules of origin, which require that a minimum share of the vehicle's parts and value come from North America. Trump has also questioned the US trade agreement with Canada and Mexico, which is slated for renegotiation this year.

Those pressures led Audi to consider setting up a US production hub, with early reports indicating it was evaluating an independent facility, potentially on a large site in the state of South Carolina.

German media later reported that Audi was considering a twin plant at Volkswagen's Chattanooga, Tennessee factory site, which already produces the ID.4 SUV, to build the Q4 e-tron SUV.

Porsche, which is also owned by Volkswagen, faces the same US tariffs. Other major German car brands, including BMW and Mercedes, have had US factories since the 1990s.

Blume said he welcomed the European Union's moves to bargain down the rate of US tariffs, saying Europe needs to adopt a tougher posture and stating the EU responded "correctly" to the tariff threats from Washington.

"Europe has many strengths and can act with confidence," he said. "That's why clear positions are important."

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