Given the German economy’s dire condition and falling interest for EVs on the global scale, the Hungarian automotive sector has been suffering. And U.S. President Donald Trump’s newly introduced tariffs on vehicles made in Europe couldn’t have come at a worse time.
In parallel, the U.S. threat to withdraw from Europe’s defense has set another wheel into motion, namely the EU’s willingness to fund rearming. As part of an ambitious package, the European Commission will raise up to EUR 150 billion on the capital markets “to help EU Member States rapidly and substantially increase investments in Europe’s defense capabilities.”
Stakeholders on the member state level are galvanized with good reason: increased military spending could mean more orders for automotive due to existing synergies. The question is how realistic it is for suppliers to jump on this speeding bandwagon.
Experts from leading companies and organizations shared their insights at a recent industry event, Portfolio-MAGE Automotive 2025, highlighting key developments and opportunities.
What sounds at first blush like a bulletproof alternative may not be that straightforward, however. Take the fact, for starters, that the defense industry has been pretty much ignored for decades in Hungary. Until relatively recently, it had been under the radar and treated like more of a pariah sector. Last year, however, spending surpassed the 2% of GDP threshold, a minimum NATO requirement that less than three-quarters of member states fulfil today (and long a bone of contention for the Trump administration, among others in the United States.
According to Tamás Stukovszky, deputy CEO of the Defense Supply Agency Zrt., despite the decline in spending in the aftermath of the change of regime and the so-called peace dividend from the end of the Cold War, the fundamentals have remained intact.
“We need to find ways to redeploy spare capacities,” said Stukovszky. At the same time, the entry threshold has become much higher for suppliers due to technological progress, he added.
János Bálind, managing director of the eponymously named Bálind Ltd., agreed that even though the sector declined after the regime change, he is confident that a large number of automotive suppliers have the skills to enter the defense industry.
Military and civil developments have been very much connected throughout the years. What’s more, the military tended to lead the charge in that department, and innovations trickled down to society. But as Áron Fellegi, chairman of the board of HypeX Consulting Zrt. pointed out in Europe the trend has reversed: the civil economy has become the engine of innovation, and this is what we need to adapt to. “As closed as this industry is, it is also desirable to have a degree of interoperability,” he stressed.
“The door is open for automotive suppliers: every armored vehicle is based on a conventional vehicle, it is just a question of implementation,” said Zoltán Szokolay, deputy head of the engineering department at the Defense Innovation Research Institute.
He added that there is openness on the part of the defense industry: everything from AI to chip technology could be interesting. However, suppliers will need to undergo serious due diligence, which is a challenge. The solution could be an innovator ecosystem, which is being worked on.
The potential for dual-use technologies is real, as they are increasingly gaining traction in both defense and automotive applications. Many firms are exploiting this, such as Magyarmet Finomöntöde Kft., which supplies Rolls Royce, for instance.
Managing director Imre Győri warned that it makes sense to find niches where supply can start immediately. Should you consider going in the development direction, it may take years before it translates into anything viable. And that’s a big downside at cash-strapped times like these.
Apart from benefiting from ballooning military spending, electrification should offer another escape route for automotive. Even against the backdrop of stagnating global demand for EVs, the market continues to have real potential. Leading global manufacturer CATL expects dynamic growth in the coming years, especially in China and Europe. Battery are needed not only in cars, but also in phones, computers and other electronic devices.
A key aspect is the proximity of large OEMs. BMW, Mercedes and Audi either plan to manufacture e-drive models in Hungary , or are already are, which favors building out supply chains. In fact, a large chunk of the future output of CATL’s battery factory under construction in Debrecen, was secured by Mercedes pretty much upon the project breaking ground.
Building supplier relationships is one of the biggest challenges for Hungarian companies. According to Balázs Szilágyi, CATL’s public affairs manager in this country, cooperation with Chinese firms does not end with the signing of a contract; it is essential to maintain constant contact and ensure quality.
In the case of services, local suppliers have a better chance of joining the value chain, but Hungarian enterprises still need to make significant progress when it comes to the production of components. Experts agree that successful suppliers are those who deliver on time, are flexible and deliver high quality.
This article was first published in the Budapest Business Journal print issue of April 4, 2025.
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