There is a new business for the European automotive industry that, from the component industry’s point of view, is an even simpler transition. AFIA wants Portuguese businesspeople to think about the issue. While they wait for the Government to play its role in supporting, particularly fiscally, the necessary investments.
The automotive components sector brings together around 360 companies, which earn 14.4 billion euros – which provides close to 63 thousand jobs – and which accounts for more than 15% of total exports. At the beginning of November (between the 4th and 6th), the Automotive Industry Week will be held again, in its 12th edition, under the theme ‘Thinking Beyond the Transition’. And what lies beyond the transition could well be the defense industry, where an increasingly vast series of other industries want to converge. For all the reasons – a car part can be used to equip a battle tank – the components industry is at the forefront of the transition. And the entity organizing the meeting, the Association of Manufacturers for the Automotive Industry (AFIA), placed the issue at the center of the three days of debate.
In a context in which Donald Trump’s tariffs imply a decrease (which has not yet been accounted for) in business volumes and exports, alternatives must be found. In an interview, José Couto, president of AFIA, talks about the subject, but also about what he expects from the Government’s actions: tax incentives for mergers and acquisitions and the investment of profits in the companies themselves would be very welcome,
The meeting will bring together automotive industry leaders, international buyers, policymakers and experts to discuss the challenges and opportunities of the automotive sector at a time of global transformation.
The United States tariffs have been in effect for over a month and the sector is already able to gain some insight into these new times in international trade.
Yes, at the moment what we take for granted is that sales to the United States have fallen: there was a decrease of some relevance, although I don’t have the final figures taking into account that the statistics in Portugal are produced with a delay. But in the conversations we have had with our associates, there is in fact a decrease in direct sales. But we also know that from an indirect point of view there is a bad environment: we have Germany also falling in its exports to the United States. And as we export to many OEM and tier 1 [fabricantes automóveis e fornecedores de primeira linha] that export to the United States, our production is also falling through this route. We may see a drop in exports of between 11% and 12%
This drop will probably increase by the end of the year.
We don’t know what will happen, as it also has a lot to do with the reaction of the markets, especially the United States market. What we can currently take for granted is that this decrease will continue until the end of the year: realistically, we think we could see a drop of between 11% and 15% at the end of the year.
What measures need to be taken in the sector to overcome this problem? One of the ways is for businesspeople to invest directly in the United States and therefore overcome the issue of tariffs. But this requires a large amount of capital, which Portuguese companies are eventually unable to raise.
This has been the objective of the North American authorities since the beginning: they want to attract European investment in their territory. That is in fact the ultimate goal. However, I want to remember that a company that decides to invest in the United States has a significant period, between two and three years, to see results from this investment. Therefore, it is not the solution, it will probably not happen in the short term. Finally, let’s hope that our European clients, if they make investments in the United States, will continue to count on us and therefore that they can be aircraft carriers for investments that Portuguese companies can also make in the United States. It is with some difficulty that a medium-sized Portuguese company, and even a large one, can do this work alone – having an OEM stimulate investment there and having some contracts in place, this can solve part of the problem. And there is also the issue of sales made by neighboring countries, in the area of influence of the United States, in mobile shopping, which have also reduced their activity and therefore…
One hypothesis would be to diversify into other markets, into China.
China sales also fell. And we have some difficulties in this market. This narrative that we have to find new markets is not… it is not easy to say that we are going to diversify markets. In addition to the fact that the European market is the one right next door. Working for the Chinese market involves extremely high logistical costs and facing adversaries or competitors. All of this has a time and a cost that needs to be assessed, it is not something that can be done lightly.
Another hypothesis is for companies in their territory, in Portugal, to have a context that is more favorable to them. Did you find characteristics in the 2026 State Budget that allow companies in general to have mechanisms that allow them to perceive an easier life in 2026?
What we face is the same as what European companies face. We have a competitiveness problem, this is a clear problem that Europe has at the moment – which is linked to the deindustrialization process, the changes in what European industry was 10 years ago: in 10 years we have lost relevance in this context. Competitiveness is a problem, compared to the United States: it is around 20% lower. And regarding China, we don’t know exactly where we are, because companies are highly labor intensive and others are highly capital intensive. Now, Europe is concerned about the situation and the focus is to increase technological competitiveness and productivity and therefore this means that investments have to be made to recover some of the time that was lost. But it’s something that probably won’t happen in the next few years. What we need is to increase our capacity to welcome new investments, encourage national entrepreneurs to continue investing in their companies so that they can increase their technological intensity, research and development, productivity, training of their workers, digitalization. And these are significant costs. We have to reward those who continue to invest and create conditions so that money can stay within companies, to remunerate investments and this means a policy from the IRC point of view. But it is also necessary for workers to feel that their efforts are worthwhile from the point of view of income distribution. Another of the difficulties that companies face in Europe today is their size: we have to find programs that help us bring companies together, add production capacity. What is in the Budget, the intentions in some aspects are good – it remains to be seen whether these intentions are implemented along programmatic lines and capable of making a difference. Also the issue of logistics: we have to reach Central European markets, which is where, in fact, European consumption is, because we have a greater effort than our competitors. Obviously there are other external issues; for example, this issue of regulation – Europe is highly formatted and conformed which translates into difficulties and barriers in competitive terms.
Therefore, there is a lack of tax incentives for increasing size and reinvesting profits. I ask you, more specifically, whether the planned changes to the Labor Laws are in the direction of flexibility, which is important for companies.
Today we live in a regulatory framework, from the point of view of Labor Laws, which in some cases determines some loss of capacity and flexibility. We can live with them, but we must analyze our competitor countries. At this moment they have a competitive advantage, which serves to attract investment. Flexibility in working hours, the remuneration process, social responsibility – companies today have concerns about human resources that often go beyond what is formatted within the framework of Labor Laws.
There is the formation of an idea according to which the need that Europe found to invest in defense determines that there is a new business niche that Portuguese entrepreneurs can try to find. In the components area, I suppose there are parts that are for automobiles, but they can also be used for tanks and war planes. Is this an area that AFIA is looking at?
AFIA belongs to CLEPA, the European Automotive Industry Suppliers Association, which is a confederation of automotive component associations. And we identified this market as a good opportunity for the industry more than a year ago. It is expected that the automotive industry in Europe will continue to decline and this decline means that we will have available production capacity. The automotive industry in Europe has almost 13 million workers and accounts for almost 7% of the bloc’s GDP – which contributes and leverages, for example, the area of research and development. Now, there is an availability of resources, infrastructure, and knowledge that exists in the automotive industry, but that can migrate to other areas, to other production sectors. Even beyond what the defense industry is. In the defense area, it is necessary to understand exactly what investments need to be made, what investments are already being made, to respond to the demands of this market. It is necessary to make a link between the needs of the European defense industry and the skills of companies, particularly components. Therefore, we have to learn quickly, know what we have to do, whether it is necessary to do it, add knowledge and what investments are necessary. And the automotive industry is currently aiming for that, it is focused on that. In fact, in our 12th industry week in Portugal we have an area, a workshop that will be specifically for us to think about and to help entrepreneurs reflect on this: what they have to do, what effort they have to make. We have to deal with other countries that have very strong investment in production and that have many years ahead of us. Therefore, this defense industry issue is crucial, it is very important, it is a business opportunity for the components industry and we would like this opportunity not to be missed. And that national businesspeople should pay attention and make, if they wish, the necessary effort to enter this segment.
