Volkswagen AG is contemplating the closure of its Audi electric vehicle factory in Brussels, marking a potential first for Europe’s largest carmaker. The factory, responsible for the Audi Q8 E-Tron electric SUV, faces closure due to high operational costs and sluggish demand.

This would be an unprecedented move for Volkswagen, which has never shut down a car plant in Europe. The decision comes amid broader industry challenges, as carmakers like Mercedes-Benz Group AG grapple with slow EV sales and reduced government incentives in key markets like Germany. Meanwhile, new competitors such as China’s BYD Co. are making significant inroads.

The closure, while significant, is seen by some analysts as a necessary step. “This would be a major step in the right direction,” said Deutsche Bank analysts led by Tim Rokossa. “Most investors would not have seen this as a possibility.”

Volkswagen has revised its operating return forecast to a maximum of 7%, down from an anticipated 7.5%. The company expects additional costs of €2.6 billion this year due to restructuring and other expenses.

Audi’s management is in talks with the Belgian government regarding the Brussels factory, which employs around 3,000 people and has been producing the Q8 E-Tron since 2022. The potential severance packages for employees could reach a substantial triple-digit million-euro amount, according to Deutsche Bank analysts.

This move is part of a larger cost efficiency and resizing program at Volkswagen. “It’s a possible indicator of upcoming restructuring actions across the European automotive industry in the coming years,” said Jefferies analyst Philippe Houchois.

Volkswagen’s additional costs also include exchange rate losses, expenses related to the planned closure of the gas turbine business of MAN Energy Solutions SE, and provisions for termination agreements across the group. The German government recently blocked the sale of the turbine unit to a state-owned Chinese company over national security concerns.

Volkswagen will release its financial report for the first half of the year on August 1.