Thinking Big: South Korean Investments in Hungary
The SK On plant in Komárom.
South Korea is the fifth largest investor in the country, and its activity in the EV segment, in particular, could propel Hungary to become a European powerhouse in this rapidly growing area. Projects guided by the Hungarian Investment Promotion Agency provide an in-depth look into what is behind the phenomenon.
2021 presented a case of déja vu in Hungary’s FDI statistics since, like 2019, South Korea, of all foreign investors, again generated the most investment volume and announced it would create the most jobs. The Asian country has tended to be among the top three since 2018 in terms of critical investment figures, including the number of deals closed. There is a fair chance that it will finish in a similar position this year as well.
Considering this level of activity, it is hardly surprising that the largest greenfield investment project of all time in Hungary is also associated with a South Korean company, namely SK On, which revealed last year plans to set up a 30 GWh battery factory in Iváncsa (50 km south of Budapest by road) for EUR 1.9 billion as part of its local expansion. SK On already has two plants in Komárom (90 km northwest of the capital); its total announced investments in Hungary are now close to EUR 3 bln. All these projects are accelerating the process of creating a robust EV ecosystem in the Hungarian economy. Apart from SK On, another battery manufacturer, Samsung SDI, is also present here, and South Korean supplier firms have set up shop one after another.
Take just the most recent deals: Lotte Aluminium will manufacture aluminum anode foils (investment volume: EUR 133 million), EcoPro BM will produce cathode materials (EUR 728 mln), and Nice LMS plans to make battery cases (EUR 14.4 mln). More than 20 locations in the country now host Asian investors in the EV segment. Since 2016, 43 related deals worth EUR 7.9 bln were closed by HIPA, the bulk of them with South Korean companies.
Hungary is building out a vital position due to the rapid expansion of its EV manufacturing ecosystem; it now has the world’s third largest e-battery capacity, with the current 50 GWh to grow to 150 GWh by 2025. This is badly needed, as European demand for lithium-ion cells in 2030 will be 10-15 times higher than the production volume on the continent in 2020, according to a research paper by IPCEI Batteries, an EU-level Integrated Project. If all goes well, though, Europe’s battery production volume can jump from its current global share of 15% to up to 28-43% by the end of the decade.
It is worth remembering that battery cells represent approximately 40% of the value added in producing an electric vehicle. So it is no wonder that production capacities for lithium-ion batteries are growing faster in Europe than in any other region of the world. As experts point out, technical advances, favorable political conditions, and a promising sales market have created a perfect storm to give the ultimate push to large-scale battery production on the continent.
Recent EU legislation is designed to speed things up even further. The Commission’s “Fit for 55” climate package aims to cut greenhouse gas emissions of new passenger autos by at least 55% by 2030 compared to 2021. Its proposal that only zero-emission vehicles should be sold within the single market from 2035 was adopted by the European Parliament earlier in June.
Kyung-Hwan Ko, managing director of W-Scope Hungary Plant Kft., interprets this new legislation positively; the company has recently announced it will build a separator film plant for EUR 720 mln in Nyíregyháza (240 km northeast of Budapest).
“In line with this market acceleration, we believe that our investment in Hungary was implemented in a timely manner,” he says. “In addition, due to this EU decision, we are internally reviewing whether to advance our additional investment plan ahead of the planned period. We have decided to invest in Hungary upon faith in Europe, which is leading the EV market, and we believe that W-Scope Hungary Plant will take an important position for our future.”
Active European policy was also among the decisive factors for SK On when determining the location of its plants. The company believes the EU’s objectives are likely to be achievable. Du-Hong Kim, the head of SK On’s Europe Business Management Unit, says its investments will make Hungary “one of the largest countries supplying electric vehicle batteries in Europe” and will “contribute positively to the development of the battery supply chain in Hungary.”
Another factor shaping the industry is constant technological development. Solid state batteries (SSB) promise superior energy density, which raises the question of how market players specialized in lithium-ion batteries (LIB) will need to adapt.
SK On is working on development of next-generation batteries such as SSB and lithium metal batteries (LMB) to improve the current lithium-ion batteries, Du-Hong Kim explains.
“We believe our SSB and LMB developments will provide ultimate safety, reduced charging time, and dramatically increased driving distance for LIB-based electric vehicles,” he says. The driving range will also be boosted by the development of a new generation of separators for solid electrolytes in particular.
Kyung-Hwan Ko, of W-Scope, stresses that SSB is still under development. Even if the technology is commercialized, it is expected to co-exist with LIBs for a considerable period.
“We are in the process of developing new products such as polymer electrolytes and ion exchange membranes that can be applied to various business areas,” he concludes.
All the related investments and research will surely come in handy since IPCEI Batteries’ progressive scenario projects that 81% of passenger cars in Europe will be battery electric vehicles by 2030, which presupposes the availability of vast battery cell capacities. Hungary’s thriving EV ecosystem holds the promise that this country will play a key role in meeting that demand, and to a great degree, thanks to South Korean investors.
This article was first published in the Budapest Business Journal print issue of July 29, 2022.
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