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Diversified Automotive Backbone Still Hungary’s Flagship

The automotive industry continues to be the backbone of the Hungarian economy, but has become more diversified through “thriving new industries”. Company feedback matters, Róbert Ésik, president of the Hungarian Investment Promotion Agency tells the Budapest Business Journal.

Róbert Ésik, president of HIPA.

BBJ: What share of Hungary’s FDI is made up by the automotive industry? How has this changed over the years?

Róbert Ésik: The automotive industry continues to be the flagship of the Hungarian economy. If we look at the numbers, among the investments managed by the Hungarian Investment Promotion Agency (HIPA) in 2017, the most investment projects are related to the automotive industry.

Beyond numbers, the position of Hungary has further developed in the past few years: we have a lot of projects creating higher added value, and it is an important fact for the evolution of the industry that three leading EV [electric vehicle] battery companies – Samsung SDI, GS Yuasa and SK Innovation – have selected Hungary as their manufacturing hub in Europe. Another milestone for e-mobility is that Audi, having the largest engine factory in the world in Győr, is expanding its Hungarian unit with electric powertrain manufacturing for its first e-model.  

The strong presence of the four OEMs and many of their Tier 1 suppliers also generates the continuous growth of the international supplier base. One of the world’s leading automotive suppliers, Valeo, is further expanding its manufacturing and R&D complex in Veszprém through a greenfield investment; Thyssenkrupp has built a new production unit in Jászfényszaru and is implementing a new site in Debrecen; Germany’s ZF is expanding its unit in Eger; and globally dominant German giant Continental is also extending its manufacturing footprint in Hungary with a new facility in Debrecen. These projects will create a high level of automated production environment, which provides an opportunity for generating higher added value.

Besides promoting FDI in Hungary, HIPA boosts cooperation between Hungarian suppliers and multinational companies by organizing training and supplier days jointly with OEMs or integrators. We also created a “virtual marketplace”, an online, English-language Certified Supplier Database for our clients. On one hand, it gives an opportunity for Hungarian SMEs to get in the race by registering, on the other hand, it provides a platform for the purchasers of OEMs and intergrators looking for reliable partners in the field of automotive industry, electronics, machinery, packaging, production-related services and implementation, ICT, innovation, R&D, environmental protection, logistics or engineering services.

HIPA’s aim is not only to promote cooperation but to support the digitalisation of domestic SMEs during the period of global technological change. Continuous innovation is essential for companies to secure their place or to step up in the supplier pyramid. The most recent trends require next generation suppliers, automotive corporations increasingly expect suppliers to assume a greater share of the development processes, such as product development and R&D. In cooperation with VW Regional Office Eastern Europe, we organized Audi Innovation Days in 2017, where innovative startups introduced their services or products to the purchasers of VW Group. The buzzing Hungarian startup ecosystem offers a wide range of agile and innovative companies and we are glad to cooperate with other OEMs too on integrating as many innovative Hungarian SMEs as possible into their supply chain.

As for another activity to spread innovation, we launched our E-mobility Booklet to encourage Hungarian SMEs shifting the level of their operation to a digital dimension. The publication presents international best practices and helps companies in better understanding the new market demands and the huge potential in e-mobility.

BBJ: What are the shares for cars, light commercial vehicles, lorries and buses?

RÉ: The major part of the Hungarian vehicle manufacturing remains cars, with approximately 470,000 manufactured in Hungary in 2017. But the increasing significance of the production of buses is indicated by the fact that the Chinese BYD, manufacturing pure electric buses, has built its first European factory in Komárom with 400 buses rolling off the production line yearly. This is double the 2016 production. Hungarian bus manufacturers like the Kravtex-Kühne Group or ITK Holding are remarkable players of the industry too. Kravtex-Kühne has announced capacity expansion in its Győr and Mosonmagyaróvár factories, and ITK just signed a memorandum for understanding with the University of Debrecen and the Municipality of Debrecen on having a strong cooperation on education and social responsibility.

The spectrum of Hungarian vehicle manufacturing has been also becoming more and more diversified in the past period, thanks to the development projects and the thriving new industries, such as the aerospace industry. In this field, investments were made by companies such as Lufthansa Technik, Magnus Aircraft, RUAG, and Diehl Aviation.

BBJ: As you mentioned, there have been a number of battery factories launched recently. Is this a growing trend, and does it indicate a firm move away from combustion engines?

RÉ: That is true, e-mobility is clearly a global trend, and the investments related to it are significantly growing also in Hungary, which, with its strong automotive background, is a perfect location for non-EU battery manufacturers to enter the EU market. So, the appearance of Asian battery manufacturers in our region is not surprising, as the European car manufacturers announce one after another that they are going to launch a lot of partially or pure electric vehicles in the coming years, but do not possess the battery capacities necessary for the production. However, the demand for combustion engines is not falling; for example, Opel’s modern Flex plant in Szentgotthárd is going to start the production of Groupe PSA’s three-cylinder petrol turbo engines of 1.2 litres at the beginning of 2020.

BBJ: What are the trends when it comes to R&D related investments?

RÉ: There are two global trends in the automotive industry: the already mentioned e-mobility, the developments on alternative or combined power trains and autonomous driving.

Thanks to the major changes in Hungary’s taxation and incentive system last year, we have been able to offer an attractive investment environment in the new digital era. I am sure, that the building of the vehicle testing track in Zalaegerszeg will also strengthen the country’s position in becoming a key player in the automotive-related R&D and ICT developments. The proving ground will provide a complex testing environment for both electric and self-driving cars, thus, a special strategic R&D infrastructure is being created. The demand for the project was given by industry players and the technical details also came from  business. The development - involving different faculties of Hungarian and international universities such as mechanical or electrical engineering, IT - will create a knowledge hub for the technologies of the future. The proving ground will offer a complete validation environment and testing opportunities, laboratory and simulation facilities and public road testing in Hungary, Austria and Slovenia.

Looking back to the last few years, a number of advanced manufacturing and development projects have been implemented in the past period. The second factory of Mercedes-Benz in Kecskemét will be suitable for the production of, among other things, alternative powered models, while the factory of Audi Hungária in Győr has a huge number of robots working hand-in-hand with the plant employees thanks to the developments. Bosch’s largest automotive research and development center outside Germany is located in Hungary; therefore, its developments for the European market are mainly carried out in Hungary. The Budapest development center of Thyssenkrupp presented a self-driving vehicle developed by Hungarian engineers and electro-mechanic “smart” steering systems in 2016.

ADAS, Continental’s business branch for advanced driver assistance systems, will establish its latest deep machine learning competence center in Budapest.

BBJ: According to your strategy, what is the main focus of your industry-related services in 2018?

RÉ: We are looking ahead: in the next coming years HIPA would like to focus more on R&D and advanced manufacturing.  As for our services, apart from looking for newcomers, we pay special attention to the needs of our clients having a long-term presence in Hungary. In the framework of our policy advisory activities we mediate between business and government. I truly believe that collecting company’s feedback is crucial to prepare policy proposals, which can further improve the business environment that allows companies to grow.