VW cuts raise fears for Portugal auto suppliers

Volkswagen’s plan to cut production capacity by 25% is raising concerns in Portugal’s automotive components industry, with the sector already expecting another year of falling sales and job cuts. Portugal’s suppliers are heavily exposed to European car demand and to major groups such as Volkswagen, which owns the Autoeuropa plant in Palmela.

José Couto, head of industry association AFIA, told ECO the German carmaker’s move “will have an impact in Portugal”, although the scale is still unclear. He said the effect will depend on each supplier’s exposure to the vehicle models Volkswagen decides to keep or discontinue as it reduces production capacity from 12 million vehicles a year to 9 million and gradually halves its model range.

AFIA said exports fell 7% year-on-year in May, a drop Couto described as significantly worse than expected, with activity across the industry likely being hit by weaker orders. He said 2026 is likely to be “another negative year” with no sales growth after two years of contraction. Exports account for 85% of the sector’s total sales and fell in 2025 to below €12 billion, according to the report.

Couto also warned that companies may need to scale back operations and reduce headcount if the downturn persists. AFIA’s worst-case scenarios for 2026 had pointed to a decline of 5% to 6%, but the association said it is still unclear whether the weakness reflects lower consumer demand in Europe or a broader adjustment in industrial activity.

At the same time, Autoeuropa’s workers’ committee told ECO it does not expect the cuts to be replicated at the Palmela factory or outside Germany. The committee said the Portuguese plant is producing the new T-Roc this year and is due to start making the future Volkswagen ID.1 from 2027, which it believes leaves the site protected “for now”.

Originally published at Eco.pt