German automaker Volkswagen will temporarily close a key factory in Portugal due to parts shortage caused by heavy flooding in Slovenia, as it disrupted the supply of engine components from supplier KLS Ljubno, German news agency DPA reported on August 29.
Comprising 20% of Slovenia’s total exports and contributing 10% to the country’s GDP, the automotive sector is an important pillar of Slovenia’s economy. It’s worth noting that no European car is manufactured without incorporating at least one component originating from Slovenia, even prestigious brands such as Rolls Royce, Bugatti and Ferrari, as well as popular ones like Volkswagen.
However, as factories across large parts of Slovenia suffered damage in the recent floods — which are estimated to have caused damage worth around €5bn in total — disruptions to the Europe-wide automotive supply chain are expected.
KLS Ljubno’s CEO, Mirko Strasek, was cited by RTV Slovenia as saying that further production disruptions are likely to ripple across the European automotive sector within the upcoming weeks.
In a memo sent to approximately 5,000 employees in Portugal, VW stated that heavy rainfall in the Southeast European country has greatly impacted its engine parts supplier, causing substantial disruptions to production.
The shutdown in Portugal is scheduled for the first half of September and is anticipated to last several weeks. Volkswagen is collaborating with alternative suppliers to restore regular production at the affected facility as swiftly as possible.
The automaker is also helping the Slovenian supplier to resume its own production. The Portuguese plant, where VW has been manufacturing the T-Roc car model since 2017, is a significant foreign industrial investment in Portugal, contributing around 4% of the country’s goods exports.
Volkswagen is unlikely to be the only company affected. KLS Ljubno has a substantial presence as a key supplier of toothed rings, supplying over 80% of the automotive market in Europe.
Strasek emphasised the company’s concerted efforts to speed up the resumption of production following the water damage incurred. However, he acknowledged that this recovery process would extend over several additional months. The company hopes to get at least a portion of its production back up and running by October, although it will not be able to fulfill all customer demands at that point.
“We are still cleaning the factory, and it won’t end soon. First we had to clean the mud and debris that was brought by the flood. We are focused on the machines and technological equipment, which we are gradually trying to bring to life, but since these are all electronics and digitized production, these sensitive instruments and electronic devices will have to be replaced with new ones,” Strasek said.
Strasek added that without state aid, the company will not be able to cover the over €100mn in damages from the floods on its own. The company’s insurance covers a mere 2% of the total damages.
Overall, the automotive industry employs over 16,000 individuals within Slovenia, and generated total revenues amounting to €4.1bn in 2022.
Read More: bne IntelliNews – Slovenian floods start disrupting Europe’s automotive supply chain