Hungary could become European battery manufacturing powerhouse within 5 years

The megatrend in the global automotive industry today is the rise of the electric powertrain, of which the battery is a key component. McKinsey predicts that by 2030, global battery production will increase tenfold, to more than USD 400 billion a year, and 90% of this will be mobility-related. According to the consultancy, the growth in demand cannot be matched by supply, so they expect a situation similar to the chip shortage. This means that battery production is becoming an increasingly strategic area.

THE SECTOR IS DOMINATED BY COMPANIES IN THE FAR EAST: THE TEN LARGEST PRODUCERS OF LITHIUM-ION BATTERIES ARE ALL ASIAN.

Chinese companies account for 56% of the market for batteries for electric vehicles, Korean for 26% and Japanese for 10%. The biggest player, China's CATL (Contemporary Amperex Technology), alone accounts for a third of the world market, serving Tesla, Peugeot, Hyundai, Honda, BMW, Toyota, Volkswagen, and Volvo, as well as Chinese car makers.

THE DEVELOPMENT OF CHINESE DOMINANCE HAS ALSO BEEN HELPED BY GOVERNMENT POLICY IN BEIJING. OVER THE PAST DECADE, ALMOST USD 15 BILLION IN DIRECT SUBSIDIES HAVE BEEN GIVEN TO THE SECTOR, IN ADDITION TO TAX BREAKS.

A major advantage of the value chains built by Chinese companies is the abundant supply of metals essential for battery production. Chinese mining companies have made timely investments in companies with concessions in South America, Africa and Australia. For example, Chinese companies supply 85% of the refined cobalt needed for lithium-ion batteries. In addition to acquiring mining rights, there is also fierce competition for technology, and CATL is one of the leaders in this field.

Chinese entry into Hungary has started at all levels of the value chain

Given the close links between Hungarian industry and the automotive sector - particularly German industry - it is a logical direction and government intention that Hungary should become a major player in battery production as electromobility takes off. The National Battery Industry Strategy 2030, announced earlier this year, aims to make Hungary a hub of the European battery value chain, not only in manufacturing but also in research, development and innovation. This requires investments at all levels of the battery value chain.

The first level of this is the sourcing and processing of raw materials. In Hungary, the raw materials for battery production are not mined, although Mol's research suggests that there may be lithium-rich deposits. For the time being, foreign manufacturers are sticking to their own sources of supply anyway. However, this could change as demand grows, and the first company to refine raw materials has already emerged: in June this year, the government signed a memorandum of understanding with China's Huayou Cobalt to set up a cathode materials plant.

The second element of the value chain, the production of battery cell components, is currently dominated by South Korean companies in Hungary. But this could change with CATL's investment in the Debrecen plant. The Chinese giant has links with Chinese suppliers, two of which are already established. Semcorp, the world's largest manufacturer of separator films, is building a factory in Debrecen, which is scheduled to start production in 2023, and recruitment has already started. The plant's four production lines will produce 400 million sheets of separator film per year. Shenzen Kedali will build a factory in Gödöllő, where battery components will be produced.

The third link in the value chain is the production of the final product, battery packs for vehicles. CATL's announcement this year of an EUR 7.34 billion investment in Debrecen is a major deal by European standards. The Debrecen plant, which recently received planning permission, is expected to start production as early as 2025 and will employ 9 000 people. Another dominant Chinese battery company, BYD, is also present in Hungary, but only in a different segment, the production of electric buses.

The battery value chains are still evolving worldwide, with players assessing which activities are of interest to the company in a given situation and which are worth accessing through suppliers. Hungarian companies are major subcontractors to the car manufacturers established here, but battery production is a new industry, so it is not obvious that a Hungarian supplier base will be established quickly. It is also unlikely that R&D and innovation will be established in Hungary in the short term, which could be delayed by a shortage of engineers. However, both Semcorp's and especially CATL's factories alone require a significant number of highly skilled professionals, says Wu Wanliang, owner of Capital Bridge.

Cover photo: Getty Images