Portuguese Automotive Component Industry Faces Economic Strain Amid European Crisis

Decline in Exports and Growing Uncertainty
Portugal’s automotive component industry, a vital sector that supplies parts to nearly all vehicles in Europe, is confronting a significant downturn. The country’s automotive exports are projected to fall in the last two months of 2024, largely due to a slowdown in new car sales across Europe. This anticipated drop is especially concerning for component manufacturers, who have already seen a decline in business during previous global disruptions like the pandemic. Portuguese manufacturers, represented by the Association of Manufacturers for the Automotive Industry (AFIA), provide critical components for the European automotive market, which makes up a significant portion of their exports. However, with the industry struggling due to declining car sales and the shift to electric vehicles (EVs), exports are expected to fall by as much as 4-5% in the final months of the year.

Pressure on Portuguese Component Manufacturers
The Portuguese automotive component manufacturing sector is deeply tied to the European automotive industry, and as car sales in Europe continue to falter, Portuguese manufacturers are feeling the impact. The sector employs over 64,000 people and generated more than €14 billion in turnover in 2023, making it a key player in the country’s economy. However, with the slowdown in European car sales, there has been a corresponding decline in demand for automotive components. José Couto, president of AFIA, warns that the situation will lead to a significant economic setback for the sector, as companies face the reality of reduced sales and production.

Challenges in the Transition to Electric Vehicles
Portugal’s automotive sector is also grappling with the broader European challenge of transitioning to electric vehicles. The European Union’s 2035 goal to phase out CO2-emitting cars is putting pressure on manufacturers to adopt EV technologies quickly. However, several hurdles remain, including high costs associated with EVs and insufficient charging infrastructure. These challenges are exacerbated by the growing competition from Chinese manufacturers, who are leading the way in EV production. For Portuguese manufacturers, staying competitive in this changing landscape requires substantial investment in electrification and workforce training, which the sector has yet to fully embrace.

Global Competition and Regulatory Pressure
The regulatory environment surrounding the European car market is also a concern. As José Couto pointed out, the EU’s stringent regulations regarding carbon emissions place European manufacturers at a disadvantage compared to competitors from regions such as the US and China. The global market for electric vehicles is fiercely competitive, and with China advancing rapidly in EV technology, European manufacturers, including those in Portugal, must adapt quickly or risk falling behind. The AFIA president stresses the need for increased investment in training and innovation to ensure that Portugal’s automotive component manufacturers remain relevant in the global automotive industry.

Looking to the Future: Adjustments and Adaptation
Despite the challenges, Portugal’s automotive market has yet to experience a significant downturn in domestic sales, with a 4% increase in sales over the past year. However, the market has not yet returned to pre-pandemic levels, and as the European industry faces mounting pressure, further declines in sales and exports are expected. The industry will likely face additional readjustments, particularly in job numbers, as demand decreases in key export markets. Manufacturers may also need to shift focus to new markets outside of Europe to offset the downturn, though the loss of production capacity is an inevitable consequence of reduced demand.