German car giants and Asian battery kings: a match made in Hungary - Reuters

BERLIN/BUDAPEST, Dec 13 (Reuters) - German automakers and Asian artillery suppliers are getting unneurotic successful Hungary successful a multi-billion-dollar matrimony of convenience to thrust their electrical ambitions.

The companies are flocking to cardinal Europe, wherever Viktor Orban's authorities is defying Western wariness of China and offering generous benefits to big overseas operations and involvement Hungary's assertion arsenic a planetary centre for electrical vehicles (EVs).

Investment successful the Hungarian car manufacture is being dominated by 3 countries - Germany, a champion carmaker, positive China and South Korea, EV artillery leaders mode up of European rivals.

Companies from those 3 countries person accounted for 29 retired of the 31 currency subsidies handed retired by Hungary for large investments successful its car and artillery assemblage implicit the past decade, according to a Reuters investigation of authorities information that shows the standard of German, Chinese and Korean convergence there.

"Cathodes, anodes, separators, assembly lines, the afloat artillery proviso concatenation is here," said Dirk Woelfer of the German-Hungarian Chamber of Commerce successful Budapest. "This is simply a ft successful the doorway to Europe."

Recipients of specified subsidies included the likes of German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), and artillery makers specified arsenic China's BYD and Korean rival Samsung SDI (006400.KS). The median subsidy level has been 15% of investment.

In total, Hungary has received implicit 14 cardinal euros ($15 billion) successful overseas nonstop concern into its artillery assemblage unsocial successful the past six years, according to authorities figures.

Major investments are broadly classed arsenic those worthy implicit 5-10 cardinal euros, varying with factors specified arsenic jobs created.

State incentives and the accidental for automakers and artillery suppliers to enactment adjacent doorway to each different is proving a beardown pull, according to interviews with astir 20 manufacture players and consultants successful Germany, Hungary, China and South Korea.

China's CATL (300750.SZ), the world's No. 1 EV artillery maker, and Korean artillery giants SK Innovation (096770.KS) and Samsung SDI, each told Reuters that the planned proximity to German carmakers was a cardinal origin successful their decisions to put successful Hungary, arsenic good arsenic being capable to root separators and different components there.

CATL is investing $7.6 billion to physique Europe's largest artillery works successful Hungary. This works and the $2.1 cardinal BMW mill volition some beryllium sited successful the metropolis of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and artillery cathodes to concern machinery.

Mercedes-Benz is converting its mill successful Kecskemet to nutrient electrical cars, portion Volkswagen's (VOWG_p.DE) Audi is making cars and electrical motors successful Gyor.

Such large concern could contiguous a boon for Prime Minister Orban's authorities arsenic the state faces its toughest economical situation successful much than a decade, with ostentation moving supra 20%, the system slowing and EU funds successful limbo.

Yet the Hungarian EVs task besides faces stiff obstacles, according to galore of the manufacture insiders.

One cardinal interest is the immense demands that monolithic artillery plants volition spot connected the energy grid, which needs to displacement distant from fossil fuels towards renewables to conscionable the net-zero emissions targets of overmuch of the car industry, the radical said.

A deficiency of specialised workers successful Hungary to enactment successful artillery compartment manufacturing could besides resistance connected capacity, they added.

HIPA, the Hungarian Foreign Ministry bureau liable for attracting investments successful areas ranging from batteries and cars to logistics, did not respond to Reuters queries astir the EV industry.

'CHINA'S MADE GOOD STEPS'

Hungary's invited to Asian artillery makers mightiness jar with concerns expressed by Brussels and Berlin astir the perils of Europe becoming excessively babelike connected China and different overseas powers, peculiarly successful technologies cardinal to the greenish transition.

Still, for now, the request to ramp up EV output leaves the European car manufacture small prime but to root from Asian players, said Csaba Kilian of Hungary's automotive association.

"I perfectly hold that European manufacturers should person their ain sources ... but it's a competition, and China has made bully steps," helium added. "There is simply a learning curve."

Europe should person a EV artillery manufacturing capableness of 1,200 gigawatt hours (GWh) by 2031 if existent plans travel to fruition, outstripping expected request of 875 GWh, Benchmark Mineral Intelligence (BMI) estimates. But of that 1,200 GWh, 44% volition beryllium provided by Asian companies with factories successful Europe, up of homegrown firms connected 43% and U.S. pioneer Tesla (TSLA.O) with 13%, according to a Reuters calculation based connected BMI data.

The prospects for processing a artillery assemblage successful Germany person been acceptable backmost by grounds vigor determination arsenic a effect of the nonaccomplishment of Russian gas, according to autos consultants astatine Boston Consulting Group and Berylls Strategy Advisors.

Hungary offers a comparatively unchangeable vigor strategy bolstered by atomic energy, arsenic good arsenic precocious subsidies and Europe's lowest firm taxation complaint of 9%.

The full artillery proviso concatenation has travel to the country, said Ilka von Dalwigk, argumentation manager astatine the European Battery Alliance, launched by the European Union successful 2017 to kick-start a homegrown industry.

"Everything is located there. When we look astatine the forecast for 2025 and 2030, it looks similar it volition person 1 of the largest accumulation capacities successful Europe," she added.

"It mightiness precise good beryllium that Hungary is successful information the adjacent large artillery accumulation clump successful Europe."

Asked astir concerns astir reliance connected Asia for technology, an EU authoritative said the bloc - which indispensable o.k. subordinate authorities subsidies to investors - had a strategy successful spot to cooperate and speech accusation connected investments from non-EU countries that whitethorn impact security.

The European Commission is presently successful talks with Hungary implicit the size of the subsidy the state volition connection to CATL for gathering the Debrecen plant, the authoritative added.

'SENDING THE WRONG SIGNAL'

For immoderate Western companies, mounting up store successful Hungary is simply a pugnacious decision.

German autos supplier Schaeffler said it was connected the verge of mounting up its superior electrical centrifugal works successful Hungary alternatively than Germany successful August due to the fact that of the entreaty of Hungary's incentives, but decided connected Germany for fearfulness of sending "the incorrect signal" to Germans who fearfulness a nonaccomplishment of jobs to overseas.

Other manufacture players expressed a scope of concerns implicit imaginable pitfalls for the burgeoning Hungarian car manufacture arsenic factories ramped up, including the powerfulness grid issue.

Batteries, successful particular, are highly energy-intensive parts of EVs to produce, requiring precocious amounts of powerfulness for the drying the materials and instrumentality operation.

Hungary's sources of vigor successful 2021 comprised 80% fossil fuels, 14.5% atomic and 3.6% solar, according to a Reuters calculation of information from the BP Statistical Review of World Energy.

The premix spells occupation for carmakers who volition soon request to showcase carbon-free credentials crossed their proviso chains nether caller German and European legislation.

Hungarian Foreign Minister Peter Szijjarto met elder executives from BMW and car suppliers including Schaeffler and Knorr-Bremse successful Munich past month, up of the German carmaker announcing it was beefing up its concern successful the country.

Topics discussed included plans to amended logistics infrastructure successful Hungary and expanding the magnitude of renewables vigor utilized for the powerfulness grid, according to 1 of the companies that attended.

When BMW archetypal announced its program to physique its Debrecen plant, successful 2018, the authorities committed to spending astir 135 cardinal forints connected improving section infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.

On the artillery side, CATL told Reuters it was considering processing star powerfulness with section partners successful Hungary.

Despite the risks, Alexander Timmer, a spouse astatine Munich-based consultants Berylls Strategy Advisors who has worked connected respective autos and artillery projects successful Hungary, said the state presented an appealing package.

"The operation of outgo advantages, authorities subsidies, and closeness to automakers' plants makes Hungary progressively charismatic to artillery producers, helium added.

($1 = 397.54 forints; $1 = 0.9483 euros)

Reporting by Victoria Waldersee successful Berlin, Gergely Szakacs successful Budapest; Additional reporting by Heekyong Yang, Zhang Yan; Editing by Pravin Char

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