Hungary: from low-cost, high-profit manufacturing base to riskier EV production center

Munich, June 2023

Hungary: from low-cost, high-profit manufacturing base to riskier EV production center

Munich, June 2023

ur analysis shows Hungary remains a promising long-term bet for OEMs and suppliers - provided they conduct rigorous due diligence before investing

Since the end of the Cold War, Hungary has proved an attractive manufacturing base for some of the world’s leading automotive OEMs and suppliers. However, the selling points that first drew international companies to Hungary, such as a relatively low-cost workforce and proximity to western European markets, are no longer sufficient on their own to justify major investments by global players. Other factors that need to be considered range from Hungary’s currently problematic relations with many other EU countries to a skills shortage in sectors that are critical to electric vehicles (EVs).

We believe that Hungary will remain a significant location for international automotive companies as recent announcements and investment activities by Magna and Boysen proof. At the same time, OEMs and suppliers will need to make smart decisions that take into account Hungary’s ability to serve as a cost-efficient manufacturing base as the transition to EVs accelerates.

This location assessment analyses the advantages and possible risks of expanding or establishing manufacturing operations in the country. In all cases, OEMs and suppliers should aim to achieve the following goals when deciding whether to initiate or increase investments:  

  • Production flexibility: Manufacturers have had to respond rapidly and cost effectively to the external shock of the Ukraine war and resulting energy crisis
  • Risk diversification: Continuing friction with the wider EU means businesses should avoid over-dependence on operations in Hungary
  • Skills sufficiency: Companies should ensure through training programs and recruitment that the local workforce has world-class electric mobility capabilities

Hungary’s automotive industry: a vibrant sector gearing up for electric mobility

In 2021, Hungary’s automotive industry included 491 companies with a combined workforce of 98,583 employees, according to data compiled by Germany Trade & Invest (GTAI), part of Germany’s economics ministry. Total production value reached €25bn, triple the equivalent figure in 2010, with around 90 percent of all vehicles exported, including 394,302 passenger cars.

Hungary’s car industry landscape includes a range of global OEMs and suppliers, led by German players, which have recently confirmed their commitment to Hungary with significant investment decisions. For example, BMW announced in November 2022 that it plans to invest more than €2bn over the next three years at its new plant in Debrecen, where it will produce around 150,000 next-generation “Neue Klasse” EVs annually, as well as high-voltage batteries for the vehicles.

Meanwhile, Mercedes-Benz will spend more than €1bn between 2022 and 2025 at its Kecskemét factory to develop two new EV platforms for more advanced, high-value vehicles; and in the same period, Audiwill invest €301 million to increase production of electric motors at its factory in Györ, one of the world’s largest engine plants.  

It is not just major European automotive companies which are ramping up production in Hungary. In September 2022 NIO, one of China’s “Big Three” EV manufacturers, announced plans to supply battery swap stations to its expanding European network from the company’s first overseas plant at Biatorbagy, near Budapest, which will also serve as NIO’s regional R&D, maintenance and training center.  

The common theme of all these spending programs is of course the global transition to electric mobility, which is also generating significant investment in Hungary by suppliers.  Hungary will have the world’s fifth largest lithium-ion battery manufacturing capacity by 2025, according to research last year by S&P Global, with China’s CATL playing a prominent role. CATL plans to invest €7.34bn in an additional 100-gigawatt hour battery plant in Debrecen aimed at serving nearby customers’ factories, including Mercedes-Benz, BMW, Stellantis and Volkswagen.

Other major international battery manufacturers with expansion plans in Hungary include Samsung SDI, which in late 2022 was discussing an additional plant in Hungary with BMW.  

At the same time, global suppliers of other EV parts and technologies are making big bets on Hungary as a manufacturing and R&D base, with German players once again in the forefront. For example, in September 2021 Schaeffler opened a new plant in the western city of Szombathely which only manufacturers electric mobility parts, with production scheduled to increase from 800,000 units in 2023 to 1.8 million units by 2029. Another illustration is Continental’s Center for Deep Machine Learning in Budapest, opened in 2018, which focuses on research into artificial intelligence (AI) applications for automated driving systems.

Just recently the Canadian Tier1 supplier Magna announced it’s plans for a new plant in Vecsés to deliver body and chassis parts to “two German premium OEMs”.

Investing in Hungary – the positives and the negatives

These are eye-catching investments, yet the full picture is more nuanced – for every “good news” press release about a new plant or R&D center in Hungary, there is often another company which has quietly decided that the country currently does not tick all the right boxes as a production base.

Hungary already has a well-developed electric mobility industry ecosystem, as the examples we have highlighted demonstrate. Yet beyond this essential precondition, investors need to weigh up the main advantages and risks associated with investing in the country.

The positives

  • Low corporate tax: Hungary’s current corporate tax rate of 9 percent is the lowest of any European country that is an OECD member, and less than one-third of Germany’s rate of 29.9 percent. This huge differential is a key reason why Hungary has proved such an attractive destination for German OEMs and suppliers.


  • Generous state subsidies: At a national and local level, Hungary’s government is committed to providing targeted assistance to foreign investors in key industries, often at the outer limit of EU state aid rules. Schaeffler’s recently opened plant at Szombathely is a typical illustration, receiving support worth around €14.9 million as a greenfield development.


  • Relatively low-cost labor: According to recent data compiled by the EU, an hour’s work in Hungary cost on average €10.40, compared with €37.90 in France and €37.20 in Germany. However, investors should also take note that Hungary’s average hourly labor costs rose 16.6 percent in the third quarter of 2022, the steepest increase of any EU country. In addition, there is a large disparity in wages between West and East Hungary


The negatives

  • Skills shortages: There is a dearth of highly qualified workers in Hungary, with some critics blaming the government’s increasingly strict anti-migration policies. The problem is compounded by the ease with which employees can move to neighboring EU countries in search of better pay and conditions. For example, Hungary’s metalworkers’ union VASAS estimates that the country’s automotive industry workers earn on average about one-quarter of the equivalent salary in Germany. As a result, there is currently hardly any qualified personnel available in western Hungary.


  • Political tensions with the EU: Some analysts suggest that the various ongoing disputes between Budapest and Brussels could damage Hungary’s attractiveness as a foreign investment destination, especially for EU-based companies. Within the automotive industry, investments in key electric mobility technologies could potentially be affected.


  • Proximity to war in Ukraine: Regardless of the Hungarian government’s equivocal position, there is no escaping the fact that, as a neighbor of Ukraine, the country is especially vulnerable to the war’s economic impact. Automotive investors will need to bear in mind the consensus among military and strategic experts that the conflict is unlikely to end soon. And in the event of an end to the conflict in Ukraine’s favour, a possible „Marshall Plan“ could lead to another shift of incentives for production re-location.

Modelling risk and revenue

OEMs and suppliers that are considering whether to invest in Hungary for the first time, or expand their existing footprint there, can utilize our range of risk analysis and revenue scenario modelling tools for the country. For example, we have developed a dashboard for analyzing potential revenue scenarios when defining Hungary production footprints (see Figure 1). 

Figure 1: Hungary revenue scenario dashboard for different production footprints


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Source: © 2022 Mapbox © OpenSteetMap

Our dashboard enables companies to enter specific product data, relevant production platforms and selected timelines, in order to derive detailed sales planning scenarios based on customized revenue and profitability forecasts (see Figure 2). 

Figure 2: Example of revenue scenarios using the Hungary dashboard


[47°30’0.0″N 19°0’0.0″E, HUNGARY]

Source: Berylls Strategy Advisors 

Berylls’ overview: The outlook for Hungary’s automotive industry

In the automotive industry, as in other sectors, Hungary continues to benefit from the exodus of production capacity from western to eastern Europe, which was triggered by the end of the Cold War. Yet this is no longer a straightforward story of companies seeking a nearby source of relatively cheap, reasonably skilled labor. The world has moved on, and so has the industry, from the age of fossil fuel vehicles toward the era of electric mobility.

In this context, we believe that Hungary merits both close attention by OEMs and suppliers considering major manufacturing investments, and rigorous, comprehensive due diligence. Like its language, the country itself is not easy for foreign investors to understand. Yet with sufficient research, Hungary remains a viable, long-term base for international automotive players.

Dr. Alexander Timmer


Felix Scheb

Project Manager

Eren Duygun

Senior Consultant

Dr. Alexander Timmer

Dr. Alexander Timmer (1981) joined the Berylls Group, an international strategy consultancy specializing in the automotive industry, as a partner in May 2021. He is an expert in innovation and market entry strategies and can look back on many years of experience in the operations environment.
Dr. Alexander Timmer has been advising automotive manufacturers and suppliers in a global context since 2012. He has in-depth expert knowledge in the areas of portfolio planning, development and production. His other areas of expertise include digitalization and the complex of topics surrounding electromobility.
Prior to joining Berylls Strategy Advisors, he worked for Booz & Company and PwC Strategy&, among others, as a member of the management team in North America, Asia and Europe.
After studying mechanical engineering at RWTH Aachen University and Chalmers University in Gothenburg, he earned his doctorate in manufacturing technologies at the Machine Tool Laboratory of RWTH Aachen University.