The Hungarian economy shrank in the second quarter of 2024, and it seems ever more likely that the dynamic bounce-back to 4% growth predicted by the government will not happen this year. The Hungarian Statistical Office’s latest report tells a tale of GDP falling by 0.2% compared to Q1 (see “Industry and Consumption: Two Hindering Factors Behind Latest Central Statistical Office GDP Data” in our Sep. 6 issue).
Much of the blame for this falls on the poor performance of the industrial sector, which contracted by 2.4%. More specifically, automotive and related battery manufacturing have lost ground. Automotive alone accounts for 28% of the production volume in the processing industry; if something is not OK in that department, it certainly has an overall impact. Given the sector has been on a slow decline for the past one and a half years, stakeholders just can’t wait for the turn of the tide.
The negative trajectory has much to do with the fact that the adoption rate of electric vehicles has slowed in Europe. In several crucial markets, subsidies are no longer available, and many potential buyers appear unconvinced by driving range or charging station density. OEMs are being forced to operate at lower capacities, meaning suppliers struggle to cope with fluctuating orders.
Some analysts believe the EU moved to phase out the internal combustion engine too fast. As Attila Szincsák, vice president of Denso Gyártó Magyarország Kft., said pithily at an automotive gathering organized by Videoton, “The European Union shot itself in the foot, then got so scared of that, it shot itself in the lung.”
Assembling an EV requires just three persons as opposed to the 10 needed in the case of an ICE. Unsurprisingly, in Germany, giants like Bosch and ZF have announced large-scale layoffs. Bad news, indeed, since the Hungarian automotive sector (and the country as a whole) is, to a large extent, dependent on German economic activity. Never mind the rest of the EU; up to 26% of total exports end up in Germany.
And news from the German HQs couldn’t be more alarming. Markline’s statistics show that, in 2023, only two-thirds of total auto manufacturing capacity was used by German OEMs. The primary factories of VW in Wolfsburg and Mercedes in Sindelfingen were down to 50%. Audi is considering layoffs.
In Hungary, automotive companies aim to handle sluggish demand by not hiring new staff, renewing fixed-term contracts, and letting temporary workers go. Wage increases are also expected to be below the national average this year. Mercedes envisages a raise of 8% compared to last year’s 23%, while Audi is planning the same wage hike. As stakeholders experience growing interest in ICE vehicles, they are readjusting their operations. Mercedes, for instance, has recently decided to delay its previous commitment to produce only EVs by 2030.
Pundits agree, though, that it is not a trend shift so much as a bump in the road. As Gábor Túry, on behalf of the HUN-REN Institute, told the online business portal G7, the real issue here is the competitiveness of European manufacturers. The biggest threat comes from Chinese manufacturers that can keep prices low, thanks to lavish state subsidies, yet deliver world-class quality.
The EU has switched into self-defense mode to protect its markets against what it maintains is “unfair subsidization.” It has raised tariffs on Chinese EVs that range from 16.4% to 37.6%, on top of a 10% duty that was already in place for all-electric cars from China. The EU is not alone: The United States and Canada have imposed a 100% tariff on EVs from the Eastern giant.
The actual impact of all those measures remains to be seen. But it seems inevitable that a significant boost in demand will be needed for Hungarian automotive to thrive again.
Although the European EV market is suffering, Hungarian buyers don’t seem to have lost interest. June sales saw the third-quickest climb in Hungary across the European Union, the Ministry of Energy Affairs said. Only sales in Croatia and the Czech Republic rose at a faster clip. Local demand for EVs was supported by a HUF 30 billion subsidy scheme to green the fleets of businesses and sole proprietors, the ministry noted.
The biggest winner was Chinese manufacturer Build Your Dream, which launched local sales in October 2023. So far this year, BYD has a 12.7% share of the battery-only EV market, making it runner-up.
“We’re very happy about the positive reaction of our Hungarian customers,” says BYD Hungary country director Annelies Reiss. The leading global EV manufacturer increased its EV market share for July even further, to more than 25%, having sold 148 vehicles in Hungary.
The zero-emission transformation on Hungarian roads is clearly gaining ground. According to the latest data released by the Future Mobility Association in June, the number of extended-range plug-in hybrid EVs had increased from 21,874 to 29,646; registrations for plug-in hybrid electric vehicles grew from 10,829 to 12,358. The number of cars with some form of electric drive has thus jumped from 74,089 to 101,213 in Hungary in one year.
Updated July figures indicate that this is an unbroken trend. The number of battery-only EVs rose close to 61,000, up from 42,266 a year earlier. Given the combined Hungarian national vehicle fleet is around 4.2 million autos, their total weight is around 1.4% of all passenger cars on the road. As of 2023, that rate for the EU was 1.7%.
This article was first published in the Budapest Business Journal print issue of September 20, 2024.
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