The Hungarian battery manufacturing industry has experienced a stark decline, with production falling to less than half of its peak levels reached in 2023. This downturn has led to the cessation of assembly lines at both Samsung SDI's facility in Göd and SK's plant in Komárom, resulting in the elimination of hundreds of jobs.

Despite substantial state support for the sector, Hungarian battery production appears to have hit a snag.

Recent discussions with geographical researcher Márton Czirfusz from the Periphery Research Center have highlighted the factors contributing to this decline.

While the volume of battery production in Hungary was on a steady and nearly exponential rise until the end of 2023, it has since faced a significant reversal.

One primary factor for this downturn is the sudden stall in demand for electric vehicles (EVs) within Europe, which had previously been on a steady upward trend.

This abrupt change has led electric vehicle manufacturers to abruptly scale back their orders.

Additionally, a growing presence of Chinese battery manufacturers in the European market has intensified competition, challenging the previously dominant South Korean producers.

Czirfusz noted that a significant question for the future is the fate of the 'green transition' and whether the European Union will maintain its previously set climate protection goals or pivot to other priorities.

Concerns have been raised that ongoing geopolitical tensions could jeopardize the transition, impacting both the automotive and defense industries in potentially adverse ways.

The Hungarian government's strategy to attract battery manufacturing was motivated by a projected decline in jobs related to traditional gasoline-powered vehicle production due to the industry's shift towards electrification.

Czirfusz commented that while the government's intentions were reasonable in seeking new opportunities, the focus on battery production may not have led to the ideal job creation outcomes, as many of the new positions are considered lower quality compared to those being phased out.

In contrast to initial fears that the transition would create a significant employment gap, the battery manufacturing sector saw a dual boom.

Increased production capacity coincided with a strategic shift of supply chains moving from Western to Eastern Europe, where manufacturing costs are lower.

This combination has created labor supply challenges for manufacturers who rely on a significant number of guest workers.

Moreover, while battery production has been a focal point, substantial electric vehicle manufacturing capacities are also being established in Hungary by companies such as BYD, BMW, and Mercedes.

Despite financial struggles faced by many German car manufacturers, there is recognition that relocation of production facilities to Eastern Europe may result in cost savings.

For instance, Mercedes plans to double the production capacity of its plant in Kecskemét by early 2026, with discussions of increasing regional production further.

Experts indicate that in a decade, the concentration of European automotive production could significantly shift towards Slovakia and Hungary, with Hungary potentially being likened to 'Europe’s Detroit'.

However, this strategy carries inherent risks associated with dependency on a single industry for economic stability, a situation echoed by past automotive downturns that have resulted in significant economic repercussions.

Concerns persist regarding the economic benefits of this manufacturing strategy, particularly regarding tax implications and profit repatriation by companies.

It remains a critical industrial policy consideration to ensure that a larger share of production benefits remains within Hungary as the industry develops.