Market analysis

Economic pillar industry

The automotive manufacturing industry is not only a representative industry of Hungary’s manufacturing sector, but also one of the key industries in the entire industrial sector. As a pillar industry in Hungary, the automotive manufacturing industry contributes nearly one-third of Hungary’s manufacturing output and has over 740 automotive and component suppliers. Nearly 90% of the automotive industry’s output is for export, accounting for one-fifth of Hungary’s total exports. The largest market for Hungarian automotive exports is within the European Union, with half being sold to Germany.

Production base

Among the top 20 global automobile manufacturers, 14 have already established vehicle factories and component production bases in Hungary. Over half of the world’s largest 100 automotive parts suppliers have factories or institutions in Hungary as well. The Hungarian government strongly supports the development of the automotive industry and maintains a completely open attitude towards foreign investment.

On one hand, this has allowed Hungary to form a relatively complete automotive industry chain and supply chain, with a solid foundation in the automotive sector. On the other hand, it has been challenging for domestic car brands to develop, resulting in only a few lesser-known brands such as Ikarus buses being present in Hungary until now. By 2023, Hungary’s automobile production is expected to exceed 500,000 vehicles, with most of them being exported.

Domestic consumption

As for the car consumption situation in Hungary, apart from a small number of luxury models, the best-selling cars in the Hungarian market are mid-to-low-end models. Currently, there are over 4 million passenger cars in Hungary, and new car sales have been around 100,000 units in recent years.

In 2023, Skoda Octavia, Suzuki Vitara, Dacia Duster and MG ZS will be the top-selling models in the Hungarian car market with prices ranging from RMB 80,000 to RMB 180,000. Luxury car sales in Hungary are expected to increase by 10% compared to the previous year.

Among them, Mercedes-Benz sales have decreased by nearly 20%, while BMW and Audi have seen slight increases and Porsche has experienced a growth of over 25%. Overall, Suzuki Toyota Volkswagen Ford Kia Skoda and other brands rank high in terms of sales volume.

Fast growth rate

It is worth noting that in recent years, the sales of electric cars in Hungary have been growing rapidly. By 2023, the sales of electric cars in Hungary are expected to reach around 10,000 units, despite having a lower penetration rate compared to the average level in Western Europe. The Hungarian government has particularly supported the construction of charging infrastructure and the country is developing a nationwide charging network. Currently, there are already over 2,000 charging stations across Hungary and this number is rapidly increasing.

Advantage analysis

Preconditions

Hungary is an important destination for the transfer of manufacturing capacity in the European and American industries, as well as multinational car companies. Why Hungary?

Firstly, it benefits from its advantageous geographical location, being situated at the heart of Europe and known as a crossroads connecting East and West. It has excellent transportation links, both by air and land.

Secondly, compared to developed car-producing countries like Germany and France, Hungary possesses a large number of highly skilled workers in the automotive industry but with significantly lower wages than their counterparts in these countries.

Lastly, as a bridge between East and West and a member state of the European Union (EU), Hungary maintains friendly relations with China while enjoying relative geopolitical stability. This enables it to attract investments from both Eastern and Western sources.

More open

The openness of the Hungarian automotive industry ecosystem is increasingly complete, which benefits not only Hungary but also the global automotive industry. Objectively speaking, European countries such as the UK and France have a strong foundation in the automotive industry, but compared to Hungary, the main difference lies in ‘openness’ and ‘restrictions’.

Open Hungary has attracted global automotive industry investments. Besides Germany and China, Hungary is the only country that hosts factories of three major luxury car brands – Mercedes-Benz, BMW, and Audi (BBA), making it the ‘Detroit of Europe’. It can be said that during the era of combustion engine vehicles, investments from the West have provided Hungary with a solid industrial foundation.

However, in the era of electrification, as manufacturing industries in Western European automotive powerhouses such as Germany, France, UK, and Italy continue to decline due to various factors, Hungary has managed to attract more investments from the East through its advantageous location and favorable policies which have facilitated its own transformation. Meanwhile, a more open attitude has also driven the transformation of Hungary auto industry.

Independent attitude

It is worth mentioning that as a member of both the European Union and NATO, Hungary has not been influenced by the will of the United States and Europe on certain key international issues. Particularly in dealing with the European energy crisis triggered by the Russia-Ukraine conflict, Hungary has been able to resolve the crisis properly, ensuring that industries including automotive manufacturing are not affected. This is also its unique appeal. Hungary has taken a series of measures to timely address the energy crisis and minimize its impact on domestic manufacturing.

Policy analysis

Established policies

Opening up to the outside, attracting foreign investment, and growing and strengthening the automotive industry is Hungary’s established policy. In recent years, Hungary has revised and updated the Foreign Direct Investment Act multiple times in order to create a more favorable business environment for foreign investors.

The Hungarian government provides a series of preferential policies for foreign companies developing in Hungary, including funding subsidies, tax reductions, rent discounts, etc., which have shown significant results.

Foresight

In fact, as early as 2016, Hungary began formulating a development plan for electric vehicles. The new green energy policy being drafted by the Hungarian Ministry of Energy for 2023 is currently seeking opinions and explicitly encourages the use of pure electric vehicles, indicating that they are a decisive tool for greening the transportation industry. At the same time, there are plans to cancel the green license plates for plug-in hybrid vehicles.

The Hungarian government is confident that the electric vehicle industry will be the pillar of the global economy in the future. Hungary’s economy will focus on green energy, and the traditional automotive industry must accelerate its transition to electric vehicles. By 2035, when new gasoline and diesel cars are banned in Europe, Hungary’s automotive industry will completely shift towards battery-powered vehicles.

To achieve this, the Hungarian government has introduced various incentives such as subsidies for purchasing electric vehicles, personal income tax reductions for electric vehicle owners, and free parking in public parking lots. As a result, sales of electric vehicles in the country have been rapidly increasing.

Financial subsidies

In January of this year, the Hungarian government announced a new policy to support electric vehicles with a total fund of 90 billion forints. These policies include supporting domestic companies in Hungary to independently purchase various types of electric vehicles, and providing subsidies based on the number of employees and battery capacity of the company. The subsidy amount for each company ranges from 2.8 million to 64 million forints. At the same time, the Hungarian government also provides subsidized loans totaling 20 billion forints to companies that provide electric vehicle leasing, sharing, and other vehicle services.

In addition, the government plans to invest 30 billion forints in building 260 high-capacity charging stations on the national road network within the next two and a half years. It is worth mentioning that in October 2023, Hungary initiated a public procurement process for operating electric buses in public transportation services. Starting from 2025, Budapest’s bus fleet will be replaced with fully electric buses.

Policy attraction

These policies have brought new opportunities and immense potential for the new energy vehicle industry, making it an attractive destination for foreign investment. Compared to some European countries, Hungary has shown greater support and higher subsidies for the development of electric vehicle industry. In addition to several Chinese power battery manufacturers, Korean companies such as SKI, Samsung SDI, and EcoProBM, a positive electrode material producer from Korea, have also invested in building factories in Hungary.

With the support of various favorable policies, it seems inevitable that the transformation of Hungary auto industry will be completed.

Cooperates with China

BYD

In 2016, BYD had already established an electric bus manufacturing plant in Hungary to primarily fulfill local orders. To date, BYD electric buses have accounted for nearly 42% of newly deployed public transportation vehicles in Hungary. In October 2023, BYD announced its official entry into the Hungarian passenger car market and partnered with two local dealerships to establish a comprehensive service network covering the entire country. On October 19th, 2023, BYD officially opened two stores in Budapest, the capital of Hungary.

Trade barrier

At present, Chinese car companies building factories in Hungary can bypass some of the trade barriers imposed by the European Union, reduce logistics costs, and respond more quickly to local market feedback and demands. They can also explore models for overseas production and sales. Many Chinese automotive industry chain enterprises have chosen Hungary precisely because of its unique advantages in terms of policies, taxation, and other related factors.

New trend

In recent years, investing in and building factories in Hungary has become a new trend. In September 2022, NIO’s NIO Energy European Factory invested and constructed in Hungary began production. Shaike Tivoli, the head of NIO Energy European Factory, stated to the media that NIO not only brings electric vehicles to Europe but also more importantly introduces advanced battery swapping station technology. Covering an area of approximately 10,000 square meters, the NIO Energy European Factory is the first overseas factory built by NIO and serves as their manufacturing center, service center, and research and development center for electric products in Europe while providing battery swapping stations for the entire NIO network in Europe.

Massive investment

According to the data, China’s investment in Hungary reached 7.6 billion euros, accounting for 58% of the total foreign direct investment exceeding 13 billion euros in 2023. This has created over 10,000 job opportunities and marks China as Hungary’s largest source of foreign capital once again since 2020. The trend of Chinese automotive companies investing and establishing factories in Hungary not only reflects the success of Hungary’s investment attraction policies but also highlights the benefits brought by the strong bilateral relationship between the two countries.

In terms of investment cooperation in the automotive industry, it is not only Hungary’s mature industrial foundation and advantageous geographical location that play a role but also its long-standing and stable cooperative relationship with China that serves as a solid foundation attracting Chinese automakers to gather in Hungary.