(Bloomberg) -- Volkswagen AG’s Audi continues to struggle with low returns as the carmaker contends with the cost of President Donald Trump’s tariffs and intensifying competition in China.

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The German brand’s operating margin came in at 1.5% in the first quarter, a slight improvement over the 1.1% in the same period last year, Audi said Monday. Deliveries of fully electric vehicles were a bright spot, rising 30%.

US tariffs lowering the value of vehicles in transit from Europe weighed on Audi’s result, as did the higher share of low-margin EVs and the cost of European emissions regulations. Collapsing sales in China and model changeovers have held back profitability at Volkswagen’s core brands VW, Audi and Porsche. All three have hammered out measures with unions to cut labor costs this decade.

Audi is under pressure as Chinese consumers turn to homegrown brands, demand in Europe remains muted and Trump’s trade tactics threaten to weigh on sales in the lucrative US market. Like Porsche AG, Audi has no factory in the US, and its top-selling Q5 sport-utility vehicle there is imported from Mexico.

The brand’s strategy for coping with US tariffs depends on how duties on Mexico develop, and what competitors including BMW AG and Mercedes-Benz Group AG do, Chief Financial Officer Jürgen Rittersberger said.

“We also have the option to discuss prices, but we first have a detailed look at how the competition reacts,” he said on a call with reporters.

By the end of next year, Audi plans to introduce ten new models in the US, where its car sales fell 14% in 2024. The brand will choose a site for local production this year, Rittersberger said, adding that Audi is evaluating potential production synergies with Volkswagen’s Scout brand and an existing VW factory in Tennessee. Any local manufacturing plans won’t negatively impact European factory capacity, he said.

Volkswagen’s Audi-led premium brand group — which also includes Lamborghini, Bentley and motorbike maker Ducati — is forecasting rising sales and profitability this year. That outlook doesn’t include the impact from tariffs or the cost cuts it’s pursuing in Germany, where Audi is slashing 7,500 positions to become more efficient.

(Updates with CFO comment on US tariffs in fifth paragraph.)

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