BERLIN/BUDAPEST, Dec 13 (Reuters) – German automakers and Asian battery suppliers will meet in Hungary in a multibillion-dollar marriage of convenience to boost their electric ambitions.
The companies are flocking to central Europe, with Viktor Orban’s government ignoring Western wariness about China and offering generous favors to host foreign business and bolster Hungary’s status as a global hub for electric vehicles (EV).
Investment in Hungary’s auto sector is dominated by three countries – Germany, the leading automaker, and China and South Korea, leaders in electric vehicle batteries that are far ahead of their European rivals.
Over the past decade, Hungary has provided 31 cash grants for major investments in its car and battery industries, 29 of which came from companies from the three countries, a Reuters analysis of government data showed. South Korea converges there.
“Cathodes, anodes, separators, assembly lines, the complete battery supply chain is here,” said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. “This is the first step towards the gates of Europe.”
Recipients of such subsidies include German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), as well as battery makers such as China’s BYD and South Korean rival Samsung SDI (006400.KS). The median subsidy level is 15% of the investment.
Hungary has received more than 14 billion euros ($15 billion) in foreign direct investment in the battery industry alone over the past six years, according to government figures.
Major investments are broadly categorized as those worth more than €5-10 million, depending on factors such as job creation.
According to interviews with around 20 industry players and consultants in Germany, Hungary, China and South Korea, state incentives and the opportunity for automakers and battery suppliers to work next to each other have proven powerfully attractive.
China’s Ningde Times (300750.SZ), the world’s No. 1 maker of electric vehicle batteries, as well as South Korean battery giants SK Innovation (096770.KS ) and Samsung SDI have all told Reuters that their plans to be closer to the German automaker are part of their decision to expand in Europe. key factors in investing. Invest in Hungary and be able to source separators and other components there.
Ningde Times invested 7.6 billion US dollars to build Europe’s largest battery factory in Hungary. Both the plant and the $2.1 billion BMW plant will be located in the city of Debrecen, which is attracting an ecosystem of suppliers ranging from manufacturers of brakes and battery cathodes to industrial machinery.
Mercedes-Benz is converting its Kecskemét plant to make electric cars, while Volkswagen’s (VOWG_p.DE) Audi is making cars and electric motors in Gyor.
With the country facing its toughest economic environment in more than a decade, with inflation above 20 percent, a slowing economy and troubled EU funding, such a large business could benefit Prime Minister Orbán’s government.
However, many in the industry say that Hungary’s EV project also faces serious obstacles.
A key issue is that large battery plants will place enormous demands on the electricity grid, which needs to switch from fossil fuels to renewables to meet much of the auto industry’s net-zero emissions targets, the people said.
A lack of specialized workers in battery manufacturing in Hungary could also be a drag on capacity, they added.
HIPA, the Hungarian foreign ministry agency tasked with attracting investment in sectors such as batteries, cars and logistics, did not respond to a Reuters query about the electric vehicle industry.
“China has made a good step”
Hungary’s welcome to Asian battery makers may contradict concerns expressed in Brussels and Berlin about the danger of Europe becoming too dependent on China and other foreign powers, especially for technologies at the heart of the green transition.
Csaba Kilian of the Hungarian Automobile Association said that at present, the European auto industry has no choice but to source from Asian manufacturers due to the need to increase production of electric vehicles.
“I totally agree that European manufacturers should have their own sources … but this is a competition and China has taken a good step,” he added. “There’s a learning curve.”
Benchmark Mineral Intelligence (BMI) estimates that if current plans come to fruition, EV battery manufacturing capacity in Europe should reach 1,200 gigawatt hours (GWh) by 2031, exceeding expected demand of 875 GWh. But of the 1,200 GWh, 44 percent will be supplied by Asian companies with plants in Europe, ahead of local companies at 43 percent and U.S. pioneer Tesla (TSLA.O ) at 13 percent, according to Reuters calculations based on BMI data. .
Prospects for the German battery industry have been dampened by record levels of energy due to the loss of Russian gas, according to auto consultants at Boston Consulting Group and Berylls Strategy Advisors.
Hungary offers a relatively stable energy system backed by nuclear power, as well as high subsidies and the lowest corporate tax rate in Europe at 9%.
The entire battery supply chain has entered the country, said Ilka von Dalwigk, policy manager for the European Battery Alliance, a coalition launched by the European Union in 2017 to jump-start an indigenous industry.
“Everything is there. When we look at the forecasts for 2025 and 2030, it looks like it will have one of the largest production capacities in Europe,” she added.
“Hungary may well actually be the next big battery production cluster in Europe.”
Asked about concerns about technology dependence on Asia, an EU official said the bloc – which must approve member states’ subsidies to investors – already has a system in place to cooperate and exchange information on investments in non-EU countries that could affect security.
The official added that the European Commission is currently negotiating with Hungary on the size of the subsidy that Hungary will provide to CATL for the construction of the Debrecen plant.
“Sending the wrong signal”
For some Western companies, setting up shop in Hungary is a difficult decision.
German auto supplier Schaeffler said in August it was about to build its main electric motor plant in Hungary rather than Germany because of attractive incentives there, but decided to do so over fears of sending the “wrong signal” to scared Germans. Created jobs are lost overseas.
Other industry players expressed a range of concerns about potential problems for Hungary’s burgeoning auto industry, including grid problems, as the plant expands.
Batteries, in particular, are energy-intensive components of electric vehicle production, requiring large amounts of electricity to dry materials and run machines.
Hungary’s energy sources in 2021 will consist of 80 percent fossil fuels, 14.5 percent nuclear and 3.6 percent solar, according to Reuters calculations of BP Statistical Review of World Energy data.
The mix presents problems for automakers, who will soon be required to demonstrate carbon-free certificates in their supply chains under new legislation in Germany and Europe.
Hungarian Foreign Minister Peter Szijalto met senior executives from BMW and car suppliers, including Schaeffler and Knorr-Bremse, in Munich last month after the German automaker announced it would strengthen its presence in the country. invest.
Topics discussed included plans to improve Hungary’s logistics infrastructure and increase the amount of renewable energy used on the grid, according to one of the companies present.
When BMW first announced its plans to build the Debrecen plant in 2018, the government pledged to spend about 135 billion forints improving local infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.
On the battery front, CATL told Reuters it was considering developing solar power with a local partner in Hungary.
Despite the risks, Alexander Timmer, a partner at Munich-based consultancy Berylls Strategy Advisors who has worked on several car and battery projects in Hungary, said the country presented an attractive package.
“The combination of cost advantages, state subsidies and proximity to automakers’ factories is making Hungary increasingly attractive to battery producers,” he added.
(1 USD = 397.54 HUF; 1 USD = 0.9483 EUR)
Reporting by Victoria Waldersee in Berlin and Gergely Szakacs in Budapest; Additional reporting by Heekyong Yang and Zhang Yan; Editing by Pravin Char
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