China scouts Hungary to power EV battery production and sell to wider, warier EU

Chinese producers are seeing Hungary as a useful staging ground for the production of lithium batteries, and a sales platform for the rest of the EU
With EU trade investigations looming, eastern European country would bypass dumping and overcapacity concerns, simplify shipping

China-EU relations

Ralph Jennings

Published: 10:00pm, 10 May 2024

Why you can trust SCMP

Chinese lithium battery producers are scoping out Hungary as a place to make electric vehicles (EVs) and their batteries to sell in the surrounding European Union – a potential workaround for the Asian manufacturing giant, which seeks to avoid accusations of dumping those goods to ease overcapacity pressures at home.

During President Xi Jinping’s visit to the European country on Thursday, he and Hungarian Prime Minister Viktor Orban agreed to “actively expand cooperation in emerging areas such as clean energy”, China’s official Xinhua News Agency reported. The term “clean energy” usually covers EVs and their components.

Chinese battery manufacturer Contemporary Amperex Technology is already building a €7.3 billion (US$7.9 billion) plant in the central European nation with plans to launch production next year, according to a paper by the think tank Centre for European Policy Analysis.

Xinwanda Electronics, also of China, is investing about 1.9 billion yuan (US$262.9 million) in Hungary for an EV battery factory.

Hungary does offer advantages as an EU member … but with potentially lower associated costs

Charlene Wang

Hungary has access to lithium mines and warm political ties with China, and its location makes shipping to the entire European continent a simple matter.

“We believe Chinese battery manufacturers are actively seeking opportunities to go overseas, and the EU is a huge market where leading auto manufacturers are located,” said Charlene Wang, associate director for Asia-Pacific companies with Fitch Ratings.

“Hungary does offer advantages as an EU member, allowing free trade with other member countries, but with potentially lower associated costs than western Europe.”

A €500 million Chinese-owned electric vehicle factory – with investment from flagship EV maker BYD – is due to open in Hungary next year, the think tank said.

And last month, a battery industry association from Shenzhen, China’s southern hi-tech hub, led more than 20 local energy storage and “new energy industry chain” companies on a fact-finding trip to Hungary, city news outlet Sznews.com reported.

China and Hungary agreed during Xi’s visit to improve transport links, which would help ship batteries smoothly from Hungary to nearby markets.

“As a critical node in the European automotive industry and supply chain, Hungary with its unique geographical location … becomes an ideal place for Chinese companies to establish roots,” said Alberto Vettoretti, a managing partner at business management consultancy firm Dezan Shira & Associates.

Analysts predicted in 2023 that China’s EV battery industry will encounter severe overcapacity issues it would have to deal with. In November, the Chinese Ministry of Industry and Information Technology said battery producers should put expansion plans on hold if they used less than half their production capacity from 2022.

03:51

China and Hungary hail ‘all-weather’ partnership as Xi Jinping gets red carpet treatment in Budapest

Lithium batteries are one of three new commodities, along with solar panels and finished EVs, that Beijing is promoting as economic staples. All three saw exports increase last year.

Goods made in Hungary, even with the involvement of Chinese investment, would be considered Hungarian if produced with local labour, materials and capital, said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.

EV batteries would dodge any EU scrutiny about whether China is dumping the goods at low prices to ease overcapacity – a prime concern, as the bloc has already launched anti-subsidy investigations into the nascent growth sector and anti-dumping probes into other imports from the country.

Beijing released two draft orders this week to protect its role as a world leader in EV battery production. One document suggests specs for batteries themselves, including recommended values for properties like lifespans and coating thickness. The other will “guide their industry to upgrade”, the ministry said.

China’s lithium-ion battery output grew 25 per cent last year for a value of more than 1.4 trillion yuan, according to the website of the State Council, the country’s cabinet. That growth paces brisk global orders for China’s EV makers, which are responding to ballooning demand for clean cars, including in much of Europe.

China wants to affirm a set of standards for lithium batteries before another country decides how the prized Chinese goods should be made, said James Chin, a professor of Asian studies at the University of Tasmania.

“They are trying to set the default standard around this industry,” Chin said.

China turns out roughly 70 per cent of the world’s electric vehicle batteries, according to the China EV100 think tank, an organisation that aims to boost development of the EV industry.