Economy 26 February 2025, 11:20am

Battery companies in Hungary cannibalise each other, a vicious circle could strangle the sector

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The world's largest battery maker, China's CATL, is preparing to float at least $5 billion in Hong Kong to finance the expansion of its Hungarian plant. The company is joining South Korean manufacturers in Göd and Komárom to significantly increase its presence in Hungary, where it is building a €7.3 billion battery plant. The new plant is strategically important as it will provide energy storage for Mercedes-Benz, BMW and other major car manufacturers. It could in turn displace SK On and Samsung SDI as suppliers to German carmakers, creating a vicious circle for the domestic battery industry.

China's Contemporary Amperex Technology (CATL), the world's leading manufacturer of electric vehicle batteries, is taking another significant step in its European expansion with the opening of a new factory in Hungary, scheduled for the second half of this year. As we reported, the company plans to raise at least $5 billion (HUF 1,900 billion) from its Hong Kong IPO to support the development of its €7.3 billion battery factory in Debrecen.

This will be the company's second plant in Europe, after the one in Germany, and is expected to start mass production later this year. The annual production capacity of 100 gigawatt hours will be enough to supply batteries for more than 100,000 electric vehicles.

CATL's main customers include Mercedes-Benz, BMW, Stellantis and Volkswagen, making the Hungarian plant a key supplier to the European automotive industry.

Although South Korean battery manufacturers, including SK On, LG Energy Solution and Samsung SDI, are not officially concerned about CATL's advance in Europe, they see serious risks in the background as competition in the market intensifies.

According to the Korean Herald, CATL's more competitive lithium iron phosphate (or lithium ferro-phosphate, LFP) batteries could be a more attractive alternative for major car manufacturers, especially for lower-cost models. Mercedes-Benz, for example, is expected to use CATL's batteries in its EQA and EQB models from 2024, partly supplied by the Debrecen plant.

The move is a particular challenge for SK On, which operates two battery plants in Hungary, in Komárom and Iváncsa, and is the exclusive supplier for Mercedes-Benz's entry-level electric models.

The competition between Samsung SDI and CATL was also fierce for BMW. The South Korean company currently supplies the German carmaker with batteries worth €2.9 billion, while CATL's contract is worth €7.3 billion and runs until 2031.

In 2022, BMW has already selected CATL and another Chinese company, EVE, for its next-generation Vision New Class models. LG Energy Solution also faces challenges in the European market, as it has not been able to develop an active partnership with Mercedes-Benz and most of its current production is destined for the US.

The Korean Herald also mentions that the government plans to make Hungary one of the most important battery manufacturing centres in Europe in the next few years, thanks to the cabinet's significant incentives to support the industry.

The country's geographical location, state support and flexibility to adapt to EU regulations all contributed to CATL choosing Debrecen for its European expansion.

The company comes to Hungary with a clear strategic objective: geopolitical tensions have made the US market uncertain for Chinese companies, while the European Union remains committed to the rise of electric vehicles. EU legislation to ban internal combustion engines by 2035 is expected to further boost demand for batteries in Hungary.

Although the EU imposed a tariff of 17-35.3% on electric vehicles from China in October 2024, this does not yet affect CATL products manufactured in Hungary. To maximise access to the European market, Chinese companies including BYD, Geely and SAIC have challenged the import tariffs in the European Court of Justice.

Negotiations are ongoing and a possible compromise could be for Chinese producers to set minimum selling prices and export volumes to the European market.

CATL's plant in Hungary could become a key player in this process, as the batteries produced here are - for the time being - exempt from EU tariffs, giving the Chinese company a competitive advantage in the European market.

All in all, the Korean newspaper believes that CATL's investment in Debrecen will not only play an important role in the supply of electric vehicles in Europe, but will also create fierce competition with existing South Korean manufacturers. While SK On, LG Energy Solution and Samsung SDI are trying to maintain their position with long-term contracts, the Chinese giant is carving out a bigger slice of the European battery industry.

It is also clear that these manufacturers are facing challenges, with SK On and Samsung SDI both cutting jobs at their Hungarian plants. There is no talk of mass layoffs yet, but they are sending people away all the time.

Their situation is exacerbated by the fact that demand for EVs remains well below expectations. As a result, battery production capacity is currently far in excess of cell manufacturing demand.

Demand for batteries is so low that Samsung's Göd factory was operating at 30-40% of capacity at the end of 2024, and the factory had to shut down completely for three weeks at the end of December, local news portal Telex reported last week. More than 2,000 outsourced workers have been laid off at the plant in the past year, while some Hungarian managers have left because of internal conflicts. The group is also in trouble globally, but the government says all is well at the Göd plant, which has received tens of billions of forints in subsidies.

Last December, domestic battery production hit an almost three-year low, falling by 51 per cent on an annual basis. This is particularly harsh because SK's giant Iváncsa factory came on stream in 2024, meaning that three battery factories in Hungary produced half as many batteries in December 2024 as two in December 2023.

SK On has sacked more than 500 internal workers and more than 1,000 external workers in the past year, and there are rumours that the Komárom factory could be closed and production moved to Iváncsa. An unnamed source pointed out to Telex that SK On lays off up to 29 workers a month, which is a legally and politically easier solution. The government has said it wants to start the year strong, and this does not include collective redundancies, which start at 30.

According to other sources, they want to move production to Iváncsa because they received tens of billions of forints in state aid to open the factory there, and if they did not produce enough or laid off workers, they would have to pay back part of the aid. This means that since the Komárom factory has been in operation for at least five years, it is possible to make redundancies there without having to pay back state aid.

The economic impact of low consumer interest is already being felt in Hungary, where KSH foreign trade data on Wednesday showed that battery exports were close to zero, while vehicle exports were also flat. In addition, only Sk On and Samsung SDI have production capacity on the market, while CATL's plant is still waiting for the ribbon to be cut.