The President’s trade tariffs are rocking the automotive supply chain.
The Audi Q5, the German luxury automaker’s bestselling model in the U.S., is becoming a model for how President Trump’s stacked trade tariffs can negatively affect the automotive industry and leave some models in the dust.
According to a new report from Bloomberg, sources close to the four rings are warning that Trump’s heavy trade levies can specifically hurt the feasibility of the Q5 due to the application of multiple tariffs. The compact crossover, which starts at $45,400, is affected by three separate tariffs that stack up: a 25% tariff on imported cars and car parts, a separate 25% tariff on all goods imported from Mexico, as well as a 2.5% tariff applied to all cars that do not meet the parts of origin requirements set by the U.S.-Mexico-Canada Agreement (USMCA).
When combined, Audi could face 52.5% trade levies on every Q5 it imports from San José Chiapa, Mexico, which could result in a pricing nightmare for customers at dealers in the U.S.
“The Q5 is a nice car, but if they’re making it there, they can’t sell it in the U.S.,” Ambrose Conroy, the CEO of auto consultancy firm Seraph told Bloomberg.
The Q5 was made to take advantage of free trade, until it suddenly went away
Audi’s lone North American factory in San Jose Chiapa, Mexico, is home to its best-selling car, the Q5 crossover. When opened in 2016, it was intended as a gateway for the U.S. market while taking advantage of lower labor costs. Since then, Audi has made over a million compact Q5s at its Mexican factory, as hungry crossover SUV-loving Americans gobbled up more than a third of their total sales worldwide. In 2024, 56,799 Q5s were sold in the United States, making up more than a quarter of the four rings’ sales in the region.
The sources who spoke with Bloomberg noted that the plant was intended to be a global export hub, where Audi could pump out Q5s for markets other than Europe and the U.S. Though U.S.-bound Audi Q5s have their final assembly done south of the border, much of the major parts that the four rings source for them are made oceans away. The engines are made in a factory in Hungary, while the car’s gearbox is made in Audi’s native Germany, and other components are sourced locally in Mexico.
As a result, Mexican-made Q5s are not USMCA-compliant. According to data from American Automobile Labeling Act (AALA) documents provided by the National Highway Traffic Safety Administration, just 2% of its parts are made in the U.S. or Canada—making each Q5 a giant red flag for tariffs.
Related: Tariffs Predicted to Decrease US and Canada Auto Sales by 1.8m as Audi Holds Cars in Ports
Audi parent Volkswagen is looking for a third way.
As the trade situation looms, Audi has been keeping cars that arrived on American ports after Trump’s 25% car tariffs went live on April 3. Audi is holding onto 37,000 vehicles in its U.S. inventory, or two months of back stock. The Q5 is not the only Audi model that could be more expensive for buyers in the U.S. The subcompact Q3 crossover saw sales increase by 45% in 2024, but its Hungarian origins could complicate the viability of its $39,800 price tag.
At the same time, Volkswagen’s parent company has been attempting to find a solution for its broader North American strategy. Volkswagen CEO Oliver Blume previously signaled that he’s waiting for clarity before making any major moves. On April 9, Volkswagen said that it couldn’t yet determine the extent of tariffs’ effects on full-year earnings.
Final thoughts
Previously, a report by Reuters stated that the four rings warned during the brand’s presentation of its full-year results on March 18 that it is weighing whether to pass on the costs of U.S. import tariffs by increasing new car prices. Audi’s finance chief, Juergen Rittersberger, said the company is looking for a “sweet spot” between increasing prices and adjusting the number of cars it makes, noting that Audi is exploring “the extent to which we will have to pass on at least some of the tariffs to our customers in the form of price increases.”
During the same presentation, Audi CEO Gernot Doellner said that the U.S. was Audi’s “main growth market” and would work around deterrents to expand its stateside presence. “This is what we are pursuing. And we are pursuing this regardless of the changes in the political landscape in the USA,” Doellner said, adding that existing Volkswagen factories or a new facility could take in some Audi production.