Hungary’s Automobile Production Set to Surpass the One Million Mark Soon


The OEM roundtable discussion at the Hipa Automotive Conference 2024

The slowdown in electric vehicle sales is temporary, and stakeholders are ready to embrace competition. However, collaboration among the entire local automotive ecosystem is needed for long-term success in the wake of the transition, experts concluded at the flagship automotive event of the Hungarian Investment Promotion Agency.

The Hipa Automotive Conference 2024 gathered the most renowned representatives of the sector to discuss the latest trends. For example, the industry hasn’t been recovering consistently in the wake of the COVID-induced economic slowdown.

According to the latest survey by the International Organization of Motor Vehicle Manufacturers (OICA), the French, Polish and American car manufacturers reached production volumes in 2023 of around 60-70% of 2019 levels, while the Japanese or Czechs managed 85-98%. By contrast, Hungary’s performance last year was already above pre-pandemic levels.

“All this would not have been possible without strong automotive hubs such as Esztergom, Szentgotthárd, Győr and Kecskemét,” said Hipa CEO István Joó in his opening keynote speech.

Thanks to the developments of recent years, the annual production output of the domestic automotive industry could increase from the current 500,000 to one million units, a capacity that only five countries in Europe are currently capable of delivering. He added that this is partly because of the connectivity approach, a vital element of the Hungarian investment promotion strategy, which will make the industry more resilient in the long term.

Electrification has created a new competitive environment where Asian players have had a head start, but this will only force European companies to produce better vehicles. Above all, the battery range must be further extended and production costs reduced.

“But to make a real breakthrough, we need to work a lot not only on the quality of vehicles but also on the development of the electromobility infrastructure for which the European Union must also allocate additional resources. Most of all, the charging point network needs to be expanded, and the conditions for related subsidies need to be eased,” Joó pointed out.

2025 Bounce-back

The temporary slowdown in demand for electric vehicles is also partly due to this lack of charging infrastructure, but experts expect a strong bounce-back by 2025.

“The success of the automotive industry sends a very clear message to manufacturers and investors that keeping production in Hungary is an economically rational choice,” concluded the Hipa CEO.

Sigrid de Vries, general director of the European Automobile Manufacturers’ Association (ACEA), agreed with Joó’s to-do list, noting that customers need more affordable autos and that European automotive can only thrive if more collaboration exists.

Top executives of Hungary-based OEMs also expressed their readiness to embrace competition that “pushes them to make better products.” The importance of training was emphasized as the sector needs to be made more attractive for the young. The existing dual education system, imported from Germany, could provide an excellent basis to reach that goal.

“Against the backdrop of geopolitical tensions and political uncertainty due to elections all over the world, it is also essential to stay flexible,” Jens Bühler, CEO of Mercedes-Benz Manufacturing Hungary Kft., said.

As showcased by a series of examples, the “Local for locals” principle is widely followed when sourcing material. The OEMs’ overall impression of local suppliers is positive, although there is still a need to take their operations to the next level in digitization, among other things.

Easing Burdens

Issuing digital invoices is still an issue, for example. On the other hand, automakers could use help, particularly in easing administrative burdens such as the duplication of reporting obligations, Olívia Mesics, managing director of Opel Szentgotthárd Ltd., part of Stellantis, noted.

Attila Vári, partner at IFUA Horváth & Partners Ltd., stressed that Hungary stands a chance to profit from the automotive transition away from fossil fuels if it assumes the role of being an integration hub, hosting flagship players from all around the world and further develops its strong position in R&D, mainly in EV and advanced driver-assistance systems (ADAS) ecosystem building.

“Innovation in Hungary is driven by FDI,” Hipa deputy CEO Rita Szép-Tüske said. She highlighted that the agency’s extensive R&D incentive scheme offers plenty of opportunities for investors to benefit. Since 2017, HIPA has guided 33 projects worth EUR 500 million, two-thirds of which were linked to automotive.

Although the number of researchers in Hungary doubled between 2010 and 2021, nobody can sit back and relax. As István Szászi, representative of the Bosch Group in Hungary and the Adriatic region, pointed out, the availability of talent alone won’t cut it; all those involved need to understand all aspects of the business to prevail.

“Business models are changing all the time, which requires stakeholders to remain flexible,” he said. This includes suppliers that should embrace a whole new mindset by turning their B2B approach into B2C by incorporating client feedback into their development plans.

“Players from the industry, research and academia are ‘gently forced’ by incentives to work together. This collaboration may not bear fruit right away, but with time, great things are bound to happen as we learn to create value,” Zsolt Szalay, head of department at the Budapest University of Technology and Economics, concluded.

This article was first published in the Budapest Business Journal print issue of June 14, 2024.

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