Economy 19 February 2025, 12:02pm

Hungary's battery industry in crisis - layoffs underway, factory closures on the cards

Portfolio

There is growing uncertainty at SK On's battery manufacturing plants in Hungary, as the slowdown in demand for electric vehicles and the company's international financial problems are having a serious impact on operations. Although the Hungarian Ministry of Foreign Affairs and Trade says that SK On and its sister company SK BM have not laid off enough workers to trigger the repayment of state aid, several workers have recently been laid off at the company's factory in Komárom, according to press reports. The problem is not just for the Korean manufacturer, the whole sector is in crisis.

According to local news portal Telex, SK On has axed more than a thousand external and hundreds of internal employees in the past year, while the downsizing continues at a slow pace.

The portal reported that the company has also recently decided to outsource its logistics department, which could mean further job losses.

Although SK On has not officially confirmed that it plans to close the Komárom plant, workers say that the closure of production lines is already on the agenda.

The Department of Foreign Affairs and Trade also responded to the news portal, saying that companies were still meeting the staffing requirements of state aid contracts in 2024, but that the current pace of redundancies raised questions about whether this situation could be maintained in future monitoring reports.

As we have written before, the Hungarian battery industry as a whole is in crisis, as evidenced by industrial performance data.

The industry's performance already started to stagnate at the end of 2023 and then showed a significant decline in 2024. SK On's situation is no exception: the company's plants in Komárom and Iváncsa are operating at reduced capacity, as demand for electric cars has faltered and global competition has intensified.

And, as we reported in our recent analysis, cutbacks in Hungarian industry are on the rise.

The news wite points out that the management of the Korean company has opened a new plant in Iváncsa with substantial state grants, but it is still not operating at full capacity. According to the company, production capacity is continuously adjusted to demand, but workers say that management is not providing clear information about future plans.

444.hu reported earlier that Tamás Székely, president of the Chemical Workers' Union (VDSZ), said that SK On's Komárom plant has been making small job cuts for months, while the restructuring of the plant is making more and more workers redundant. Although the company has not officially announced any collective redundancies, the legal uncertainty of the workers is growing.

The international market situation and SK On's difficulties

SK On's parent company, SK Group in South Korea, has been facing financial challenges for some time. The company has not made a profit since its spin-off in 2021, and posted operating losses of 400-460 billion won (around 100-120 billion forints) in both the third and fourth quarters.

At the end of September last year, the company announced that it would introduce voluntary redundancy programmes at its South Korean headquarters to cut costs, offering special leave schemes and early retirement options for South Korean employees.

At the time, SK On Hungary told Portfolio that these measures would not affect its Hungarian plants, which employ more than 4,500 people.

Meanwhile, South Korean battery makers including SK On, Samsung SDI and LG Energy Solution are facing global challenges, the Korean Herald reported last week.

Due to the US Inflation Reduction Act (IRA), batteries from Chinese factories cannot be exported to the US, while Chinese raw materials and supply network remain indispensable for Korean manufacturers. Due to falling demand and geopolitical tensions, the companies concerned, including SK On and Samsung SDI in Hungary, have seen their Chinese factories under-utilised and some operating at a loss.

Although the Hungarian government has treated battery production as a strategic sector in recent years, the current crisis in the sector highlights its vulnerability.

By the end of 2024, industry output has fallen by more than 50% and the outlook is uncertain.

The future of the Hungarian battery industry is highly dependent on global automotive trends and the evolution of demand for electric vehicles. There is also competition in the country, with Sunwoda, EVE Battery and CATL all starting or increasing production. But these 'Eskimos' (battery manufacturers) are facing a shortage of 'seals' (low demand for EVs). So the main question is how European sales will pick up when the US market is increasingly out of reach.

While there are plans for procurement support programmes across Europe, the EU incentive is increasingly likely to target products from European players, which could be unfavourable to Chinese value chain manufacturers.

According to Opten statistics - based on the database of tax authority NAV - the number of employees in the company has indeed decreased: in April 2024, the number of employees peaked at 3027, which fell to 2526 by December 2024.

It is important to stress that this is a statistical headcount where part-time employees are included in the full-time equivalents, which may be lower than the actual number of employees.

Cover image (for illustration purposes only): Getty Images