Denso Gears up to Tackle Shift to Electrification Head-on

Automotive

Photo by T. Schneider / Shutterstock.com

The automotive sector in Hungary is being forced to adapt to the paradigm shift of electrification. Japanese-owned Denso offers an excellent example of how to do it.

Denso is one of the more than 200 Japanese firms that operate in Hungary, and also happens to be the world’s third-largest automotive supplier with a presence in 35 countries. The company set up shop in Székesfehérvár (a city 100 km west of Budapest by road) back in 1997 and has been continuously investing ever since. For 2014-2024 alone, some EUR 220 million has been earmarked for that purpose.

The latest waves of investment focus on one particular factor, namely preparations to meet rising customer demand for electrification. Denso already has three decades of expertise in the segment, but it wasn’t until recently that things came to a head, and a strategic shift from internal combustion engines (ICEs) became a necessity.

The Hungarian factory is the company’s exclusive producer of power transmission items in Europe and one of the largest under-one-roof manufacturing cells within the group. Among its customers, leading OEMs such as Audi, GM, Toyota, VW Group and Volvo are served from Székesfehérvár by more than 4,700 staff.

Denso’s latest announcement in mid-June concerned installing three new production lines worth EUR 64.4 mln to manufacture inverters for electric and plug-in hybrid electric vehicles. Hungary already ranks 14th in terms of inverter exports; that position is set to improve as a result of this project.

“Ever since Denso Manufacturing Hungary was set up, we have been striving to establish a product portfolio that allows us to remain competitive. The current paradigm shift in automotive has a huge impact on the industry, so we have been consciously monitoring market opportunities by applying a strategic approach,” the company says.

Fierce Competition

Vice president Attila Szincsák stressed the importance of making the operation future-proof.

“We are witnessing the largest technology change in a century, and this investment is a response to this tech challenge,” he notes. “Another key aspect is to continue to maintain jobs and remain a reliable cooperative partner of the city of Székesfehérvár as well as take part in Hungary’s development.”

A diversified product portfolio is critical to making that happen, as it has allowed Denso’s Hungarian site to be a stable manufacturing hub, and that promises further investments.

Denso’s FDI activity showcases the government’s overall economic strategy, which aims to turn Hungary into a powerhouse of electrification. According to Minister of Foreign Affairs and Trade Péter Szijjártó, adapting to the automotive transition is essential to maintaining growth. A fierce race is on since everybody is aware that those countries that can attract electric automotive investments will be strong in the future and remain on a growth path.

The rapid development of the industry bears witness to the fact that the country has a positive appeal in this regard: production value grew by a factor of 3.5 in the past 12 years and hit a record level of HUF 12 trillion, with some 90% of products exported. Growth is significantly attributed to battery-related projects. To put their significance into perspective, it must be noted that although Hungary ranks only 95th in the world in terms of population size, it is fourth when it comes to battery manufacturing; upon completion of ongoing developments, it should advance to second place.

Reskilling is Vital

The transition also means jobs will be affected. Many fear that major layoffs could take place since manufacturing EVs requires fewer components than vehicles powered by an ICE. However, an analysis by Boston Consulting Group (BCG) found that although 930,000 auto manufacturing and supplier jobs will disappear in Europe by 2030 with the introduction of EVs, another 895,000 new jobs will be added.

So, the transition to electrification will be “a net job wash,” BCG says. Denso’s example gives a clear indication that there is room for positivity: its recently announced investment, scheduled to be completed by the end of 2024, will create up to 55 jobs.

What is absolutely certain is that planning has become more critical than ever, and part of that process is to equip staff with the skills required to perform tasks that change due to electrification. Denso places considerable emphasis on knowledge transfer within the organization so that employees can master knowledge that enables them to implement further developments and elevate manufacturing to the next level.

Reskilling is vital, and Denso says it is up for the challenge. It remains to be seen to what extent other market players follow suit, for a total of 158,000 people are employed in the automotive sector.

Denso, for its part, has done its homework and looks forward to entering a new electrified era, as evidenced by a company statement it put out, according to which it “awaits the upcoming challenges in automotive well-prepared, and it has also set up the base for eventual further expansion.”

This article was first published in the Budapest Business Journal print issue of July 28, 2023.

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