The new €7.3-billion Contemporary Amperex Technology Co. Ltd. (CATL) battery plant, one of the top producers of batteries for electric vehicles, under construction on Sept. 24 in Debrecen, Hungary. The plant is one of the biggest of its kind in the world, the showpiece for Chinese investment in Hungary.Balint Bardi/The Globe and Mail
Judit Szemán, the owner of a small farm on the southern fringe of Debrecen, Hungary’s second-largest city, knows her life is about to change – for the worse.
From the edge or her beloved four-hectare property, which is dotted with apricot, peach and cherry trees, along with the carcass of a Russian Lada sedan, she points to a low-lying building less than a kilometre away that looks like a big-city airport terminal. The sides of the enormous structure are white, its upper fringe, orange.
It is the new €7.3-billion CATL battery plant, one of the biggest of its kind in the world and the showpiece for Chinese investment in Hungary in the electric-vehicle industry. “We are an organic farm here but now we have these polluting factories around us,” said Ms. Szemán, who is 55 and was born on the property. “We do not want to sell our land but these factories might poison us.”
CATL stands for Contemporary Amperex Technology Co. Ltd. Surrounded by cranes and trucks trundling to and from the site, the Debrecen plant, which will eventually employ 9,000 workers, is located on 221 hectares of what was farmland and forest. Construction is to finish in March, after which it will supply the European automotive companies, some of which have assembly plants near Debrecen, which lies on the flatlands of east-central Hungary.
After the third phase is finished in a few years, its annual output will be enough to supply batteries for more than one million electric vehicles.
The plant triggered robust criticism and protests but the locals today have gone largely quiet. They seem to realize that they cannot stop, or even modify, a factory that is championed by the government of Hungarian Prime Minister Viktor Orban, who is playing a delicate and potentially risky game of courting big-bang investments from China and Russia while maintaining Hungary’s membership in the anti-Russia and Sino-skeptic European Union.
Peter Akos Bod, a former governor of the Hungarian National Bank is now professor of economics at the Corvinus University in Budapest, Hungary, on Sept. 25.Balint Bardi/The Globe and Mail
Attracting Chinese factories is part of Mr. Orban’s “economic neutrality” strategy, meaning he does not play favourites – China’s money is as good as the EU’s in Hungary, as far as he is concerned.
The Janus-faced investment gambit is novel by EU standards, and would be absolutely unique by North American standards. In Canada and the United States, the Chinese EV industry is not welcome and both countries recently announced 100-per-cent tariffs on imported Chinese EVs, effectively eliminating those low-cost models from the market.
The EU, in general, and Hungary, in particular, are taking a different approach. The EU has imposed a 10-per-cent tariff on Chinese EVs. New proposed tariffs would range from 9 per cent to 35.3 per cent on top of the existing ones and stay in place for five years. But even at the upper end of that range, the duties would be modest by North American levels. Still, they are potentially high enough that CATL and a few other Asian companies – among them Eve Energy, Sunwoda, Samsung SDI and SK Innovation – are pouring billions into Hungary as they seek an EU foothold.
“The government’s strategic goal was for Western carmakers and Eastern battery makers to meet in Hungary,” said Ádám Nagy, Deputy Secretary of State for Industry Affairs.
The German automakers – Volkswagen, BMW and Mercedes – welcome the Hungarian battery plants and Mercedes will be CATL’s biggest customer. When the project was announced in 2022, Mercedes development chief, Markus Schäfer, called it “another milestone for the scaleup of our EV production.”
But Hungary’s burgeoning Chinese investments are not across-the-board good news for the German automakers. In December, BYD, the Chinese auto company that recently displaced Tesla Inc. as the world’s No. 1 EV maker, measured by unit sales, announced it will build an EV plant in Szeged, in southern Hungary. It will be the EU’s first Chinese-owned EV assembly operation and its products will be sold tariff-free across the bloc’s 27 member states.
Peter Akos Bod, a former governor of the Hungarian National Bank who is a professor of economics at the Corvinus University in Budapest, thinks the BYD plant (whose investment value was not disclosed) could spell trouble for the European automakers. “It’s risky because BYD could take the lower end of the EV market, just like the Chinese took over the solar-panel market in Europe years ago,” he said in an interview with The Globe and Mail.
While the CATL battery plant will work with the German automakers, “the BYD factory is in competition with them,” said Gergely Salat, senior research fellow at the Institute for Foreign Affairs and Trade, a Hungarian think tank with close ties to the government.
The upshot is that, between the vast new battery plants – CATL also has one in Germany – and the BYD car factory, the Europeans are on course to adopt EVs far faster than the North Americans. But at what price to the European automakers, which have been slow to roll out affordable EVs and are lobbying Brussels to delay emissions rules that would end the sale of internal combustion car engines by 2035?
“The green transition cannot mean destroying thousands of jobs or dismantling entire industrial segments that produce wealth and employment,” Italian Prime Minister Giorgia Meloni told Confindustria, Italy’s industrial association, in mid-September.
Hungary wins both ways, at least for the moment. Battery plants that the European auto companies do want are coming along with the EV factories that they do not want. Either way, fortunes being pumped into Hungary and foreign direct investment in the country doubled last year to €13-billion. A vast EV ecosystem is forming in the eastern and southern parts of the country and, barring a collapse of the EV industry – sales in the EU have plunged this year by about a third over last year – Hungary is on course to take a top position in the EU’s green-mobility campaign.
Mr. Nagy said the government’s goal is to ensure that Hungary is among the world’s top-five battery makers.
The bosses of the Chinese battery and EV companies are hard-headed executives who invest where they can maximize profit margins, and Hungary is coming out on top. By EU standards, land in Hungary is relatively cheap, as are labour and energy. The country balked at imposing sanctions on Russian oil and gas, which is cheap by EU standards, and still imports the fuels.
Add in lavish Hungarian subsidies for EV and battery plants that collectively came to about US$2.5-billion – a fortune for a country that represents just 1.1 per cent of EU economic output and 2 per cent of its population – and you have an incentive package that is hard to resist. Political expediency enters the equation, too. “When Chinese companies make investments, they don’t just look at financial factors,” Mr. Salat said. “They look at political factors, too, and Hungary is the most pro-China EU country.”
Hungary, which joined China’s Belt and Road Initiative a decade ago – the first EU country to do so – courts Chinese investment and Beijing is responding. When Chinese Premier Xi Jinping last travelled to the EU in May, he visited only France, Serbia and Hungary. Money does buy influence and countries that absorb a lot of Chinese investments may be tempted to support China in, say, United Nations or EU votes.
“China needs Hungary for political reasons, like using its veto power to block decisions at the EU level that might not favour China,” Mr. Salat said.
Take tariffs and other restrictions on Chinese exports. In the summer, when the EU said it would impose extra duties on Chinese cars, Hungary’s Ministry of National Economy called them “brutal European punishment,” even though the European Commission, the EU’s executive arm, concluded last year that Chinese state subsidies lavished on its EV industry create an unfair playing field. The EU has unpleasant memories of the subsidized Chinese photovoltaic industry wiping out most European competitors about 20 years ago.
Mr. Orban’s courting of China (and Russia) became, in effect, official policy recently when he unveiled the “economic neutrality” plan that seems an attempt to position Hungary midway between East and West, seeking investments from China and the rest of Asia, and the EU countries.
In a Hungarian radio interview on Sept. 13, Mr. Orban said: “We mustn’t allow ourselves to be locked into one hemisphere or other, East or West,” he said. “But we must maintain our relations, trade, openness, co-operation and competition with both East and West. This is unusual, because for the past 30 years, we have been talking about how to take our place in the Western world – EU membership, NATO membership and so on.”
Mr. Bod thinks the neutrality concept borders on the ridiculous, since Hungary chose sides when it joined the EU in 2004. “We are members of the EU club and cannot be neutral,” he said. Referring to the EU competitiveness report published in September by former European Central Bank president Mario Draghi, he added, “Draghi just said that, to compete, we have to work together; you cannot be seen to be inside the club and outside at the same time.”
Mr. Bod says there is another reason why Mr. Orban is courting Chinese investment. “He is translating a necessity into a virtue since money is not coming from Brussels now,” he said, referring to the EU withholding billions of euros of funds from the country over concerns about the erosion of human rights and the rule of law under the Orban regime.
In spite of Brussels’ tense relationship with Budapest, and the obvious threat of the BYD factory to the legacy European automakers, Hungary is forging ahead with its “neutrality” strategy and gambling that automotive clusters will form and reshape the economy for the better. So far, the plan seems on track. “Hungary is not an EU sleeper-agent for China,” Mr. Bod said. “It’s an open agent for China.”
In Drebecen, home of the CATL factory, many residents are wary about the investment strategy. László Mándi, an opposition member on city council, has been fighting for answers about the site’s environmental footprint, with little success. “Yes, the plant will boost the local economy,” he said. “But it is still not clear, for instance, how much water it will use. Or where the workers will be housed.”
Ms. Szemán, the farmer whose views are dominated by the CATL plant, is dreading the day production starts, fearing air, water and light pollution. Not long ago, she was approached by men who asked if she would consider selling her property so it could be used for a solar farm or workers’ housing for CATL.
“We know that soon, we will not be able to live here,” she said. “I guess we will have to sell. If we did, we know one thing – we would move very far from this place.”