Years of underinvestment in electric vehicle technology and supply chains have left European automakers struggling to catch up with Chinese competitors. But even as the EU discusses putting up trade barriers for electric cars imported from China, Chinese automakers are planning to set up their own factories for Europe in Viktor Orbán’s Hungary. has invested hundreds of millions of dollars.
Europe’s borderlands are changing. In the city of Debrecen in southern Hungary, a lithium-ion battery factory worth 7.3 billion euros is being built on 221 hectares of former farmland in the Southern Industrial Special Economic Zone. The factory is the largest greenfield investment project in Hungary’s history and is being built by Chinese manufacturer CATL, which controls almost two-fifths of the global electric vehicle (EV) battery market. Once production begins in 2025, the 100GWh factory will become Europe’s largest EV battery producer.
As Chinese President Xi Jinping continues his three-day visit to Hungary, European automakers face a fundamental dilemma. It will now rely entirely on Chinese-made batteries to transition away from its own sluggish internal combustion engines, reaping huge profits from Chinese manufacturers. The Gigafactory will supply products to European and American companies such as Volkswagen, BMW, and Stellantis.
But at the same time, China’s growing investment in Hungary’s auto industry exposes the country to rivals that could one day force its European automakers out of business. Chinese EV manufacturer BYD announced late last year that it was building its first European factory in the southern city of Szeged. The project will involve an investment of 500 million euros and will be spread over approximately 300 hectares. BYD’s European managing director announced on Thursday that the company is considering building a second European factory in 2025, making it the first major Chinese automaker to establish a production base in Europe. The company says it wants to become Europe’s leading EV manufacturer by 2030.
BYD poses a direct challenge to major European automakers, said Tamas Gerox, a researcher and international adjunct lecturer at the State University of New York at Binghamton.
“The problem is that BYD has its own battery system, which Germany doesn’t have,” he said. “They control their suppliers and the entire value chain in a much more advantageous way than the Germans. And this is serious. It goes beyond just making batteries, it extends to the mining end of the chain, the mines. For example, none of the German companies have direct access to lithium supplies, but most Chinese do.
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Agnes Znomar, director of the Institute for Global Studies at Corvinus University in Budapest, said creating a production center in the European Union would give China a strong base from which to bring its high-quality EVs to Western markets. Stated.
“Chinese automakers will definitely create competition from European automakers,” he said. “Technically it’s at the same level or better, but it’s cheaper in terms of price.”
Gerox said European automakers are currently struggling to make up for a long-standing lack of investment in green technology.
“Many of these German companies are making a lot of miscalculations about where to allocate their investment funds,” he said. “They obviously stuck with the old internal combustion engines, especially the diesel engines, for too long. They hoped they could keep it on the market. And they underinvested in EV technology and It seems we are now paying the price.”
growing dependencies
Since the collapse of state socialism and the harsh transition to market economies across Central and Eastern Europe, successive Hungarian governments have relentlessly pursued a development model based on the introduction of foreign capital into low-wage manufacturing. Ta. This means that for three decades, the auto industry, long dominated by German carmakers eager to move production to Europe’s periphery, is being drawn to Hungary by taxpayers’ generous foreign investment subsidies. are doing.
These policies were further strengthened after the election of Viktor Orbán’s right-wing Fidesz party in 2010 in the aftermath of the global financial crisis. The spread of economic turmoil throughout the EU also made Hungary keenly aware of the risks of relying solely on Western European capital to finance its development. Immediately after his election, Orbán launched what he called an “open eastern” policy, building on the expansion of his predecessors into Asia by attracting multinational companies from Japan, South Korea, and now China. I started promoting it.
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Andrea Ertet, a senior researcher at the World Economic Institute, said the Orbán government is spending hundreds of millions of euros in subsidies to attract foreign direct investment (FDI) to the automotive sector.
“Huge state subsidies and subsidies that the Orbán government is giving these companies. There is a kind of regional competition to attract these Chinese companies, and the Orbán government is giving so much aid, state subsidies “It seems like a very good proposal because it’s providing money, taxpayer money,” she said.
The scale of Budapest’s subsidies is substantial. To move CATL’s battery factory to Debrecen, Orbán promised the Chinese manufacturer about 800 million euros in tax incentives and infrastructure support, more than one-tenth of the total investment. Also, Hungary’s corporate tax rate is 9%, the lowest in Europe. In return, Hungary hopes to surpass the United States in battery production and become the world’s second-largest battery producer after China.
move chain up
Gerox said nationalist President Orbán’s introduction of foreign capital into targeted industries was part of a broader plan to move the country further up the global value chain, which has so far failed. He said it was finished.
“They are trying to create a Hungarian industrial class, but it is, as you know, very small,” he says. “During the privatization period in the ’90s, it almost disappeared within the broader framework of FDI dependence. So it’s a kind of maneuver in different ways. And they were very friendly and export industry We are attracting FDI to specific industries, mainly in the trade sector, such as car manufacturers, electronics, and large export companies.”
Years of investment by France, Germany and Italy in Hungary’s auto industry appears to have done little to advance this objective, Gerox said. Instead, an assembly line approach to technology that now looks dangerously outdated has left the country’s manufacturing base at risk in the face of the global transition to electric vehicles.
“This is a big problem for these countries,” he said. “If they don’t do something, if they don’t have a strategy to adapt to this new situation and respond to these challenges that are clearly beyond their realm, then there will be shockwaves that will shake the industry and these countries. will happen.”
But some are skeptical that producing batteries for EVs will allow Hungary to move up the value chain in the same way that it produced internal combustion engines.
“One of the benefits could be potential technology spillovers, but typically these companies only bring assembly activities and not R&D activities,” Znomer said. “And the Chinese seem to be choosing to follow in the footsteps of the Germans and French in this regard.”
building wall
The European Commission has already panicked over China’s so-called “overcapacity problem,” in which state preferential treatment for Chinese companies has flooded the world market with products that Western countries cannot match on price. An investigation into “equipment distortion” has begun. ” Electric vehicle subsidies. The investigation could lead to the EU imposing tougher tariffs on Chinese green technology to protect its own industry.
“Chinese electric vehicle companies are expanding into the EU market,” Schnomer said. “The EU knows that and is afraid of the consequences, which is why it is already working on specific barriers and restrictions that will keep them out.”
However, even if these tariffs come into effect, they will not affect Chinese-made electric vehicles manufactured within EU borders, Ertet said. Thus, Chinese car manufacturers’ investments in Hungary will not only increase their access to the European market, but also protect them from protectionist measures that the EU may introduce.
“I think the EU was a little slow to wake up, but I don’t know if they realize the extent of China’s aggression (let’s call it aggression) in EU member states,” she said. “Or there’s another possibility: German automakers are interested in the battery, so they realize it and then let it go.”
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Gerox said European automakers’ dependence on Chinese batteries makes it difficult for European countries to mount a united front against Chinese competitors.
“German companies are feeling the impact very strongly and directly. They are really dependent on Asian suppliers, especially battery suppliers, and at the moment they have not been able to come up with viable alternatives,” he said. Ta. “There is also very intense competition in China’s domestic market, and this is spilling over here to Europe, and everyone is very scared about what will happen in the next few years. But at the same time, there is also interdependence. They still need to use this technology. They can’t just switch off.”
The bigger issue is Europe’s own commitment to cutting carbon emissions, which is urgently needed in the face of a worsening climate crisis. Under the EU’s 2020 Green Deal, the EU must phase out the sale of internal combustion engines from all new cars by 2035. Schnomer said this is a goal that Europe will never be able to reach without continuing to benefit from Chinese-made EV batteries.
“It is impossible to meet climate goals without electric vehicles,” she said. “And electric cars don’t work without batteries.”
