BERLIN -- German automakers and Asian battery suppliers are getting together in Hungary in a multi-billion-dollar cooperation to drive their electric ambitions.
The companies are flocking to central Europe, where Viktor Orban's government is defying Western wariness of China and offering generous benefits to host foreign operations and stake Hungary's claim as a global center for electric vehicles.
Investment in the Hungarian auto industry is being dominated by three countries - Germany, a champion automaker, plus China and South Korea, EV battery leaders way ahead of European rivals.
Companies from those three countries have accounted for 29 out of the 31 cash subsidies handed out by Hungary for major investments in its auto and battery sector over the past decade, according to a Reuters analysis of government data that shows the scale of German, Chinese and Korean convergence there.
"Cathodes, anodes, separators, assembly lines, the full battery supply chain is here," said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. "This is a foot in the door to Europe."
Recipients of such subsidies include companies such as BMW and Mercedes-Benz, and battery makers such as China's BYD and Korean rival Samsung SDI.
The median subsidy level has been 15 percent of investment.
In total, Hungary has received over 14 billion euros ($15 billion) in foreign direct investment into its battery sector alone in the past six years, according to government figures.
Major investments are broadly classed as those worth over 5-10 million euros, varying with factors such as jobs created.
State incentives and the opportunity for automakers and battery suppliers to work next door to each other is proving a strong pull, according to interviews with about 20 industry players and consultants in Germany, Hungary, China and South Korea.
China's CATL, the world's No. 1 EV battery maker, and Korean battery giants SK Innovation and Samsung SDI, all told Reuters that the planned proximity to German automakers was a key factor in their decisions to invest in Hungary, as well as being able to source separators and other components there.
CATL is investing $7.6 billion to build Europe's largest battery plant in Hungary. This plant and the $2.1 billion BMW factory will both be sited in the city of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and battery cathodes to industrial machinery.
Mercedes-Benz is converting its factory in Kecskemet to produce electric cars, while Volkswagen Group’s Audi is making cars and electric motors in Gyor.
Such big business could present a boon for Prime Minister Orban's government as the country faces its toughest economic environment in more than a decade, with inflation running above 20 percent, the economy slowing and EU funds in limbo.
Yet the Hungarian EVs project also faces stiff obstacles, according to many of the industry insiders.
One key concern is the huge demands that massive battery plants will place on the electricity grid, which needs to shift away from fossil fuels towards renewables to meet the net-zero emission targets of much of the auto industry, the people said.
A lack of specialized workers in Hungary to work in battery cell manufacturing could also drag on capacity, they added.
HIPA, the Hungarian Foreign Ministry agency responsible for attracting investments in areas ranging from batteries and cars to logistics, did not respond to Reuters queries about the EV industry.