The cost of an electric car is set to drop in Hungary, with the government offering to help consumers with the purchase from October, the country’s economy minister pledged at an E-mobility Forum held in Budapest on September 21.

Support totalling HUF5bn for purchasers of electric cars over the next 18 months is the latest in a series of incentives aimed at raising demand in Hungary, which aspires to be a regional leader in electromobility. Other Visegrad countries, however, aren't about to give Hungary a free pass.

Economy Minister Mihaly Varga repeatedly emphasized at the Budapest event that Hungary is "becoming more and more involved in the fight against climate change and global warming,” as he announced the latest incentive to boost the use of electric vehicles. Environmental issues, however, have never been particularly high on the political agenda of the ruling Fidesz party.

The government is currently being widely criticized, for example, for drastically reducing green space in the capital’s Varosliget (City Park) and for passing regulations that curb the development of wind power. The government also appears more willing to risk another major spat with the EU than angering voters by introducing a congestion charge in Budapest.

Driven

The government’s new push on electromobility may be driven less by environmental concern then, and more by Budapest’s urge to keep pace with developments in the vital auto sector.

According to a forecast by the International Energy Agency, by 2050 70% of new vehicles sold will be hybrids or plug-in hybrids. "It is therefore in the very best interest of the national economy to grab as large a share of this development process as possible,” Varga pronounced two years ago, as he announced the "Jedlik Plan" - named after the Hungarian inventor of the first electromotor – which would, the government promised, popularise electromobility.

Hungary has the potential to become a regional leader in electric vehicle manufacturing, given the country’s experience in the auto sector and its “strong base of research, development and innovation,” Varga added at his latest appearance.

Already home to car plants operated by Audi, Opel, Daimler and Suzuki, Hungary has seen industrial production boosted by recent expansions. New projects continue to arrive, and not just from suppliers. Daimler announced a €1.6bn expansion of its Hungarian plant earlier this year.

Analysts warn, however, that the operations remain those of simple manufacturing, rather than the higher added value R&D.  On top of that, the economy is at some risk of growing too dependent on the auto sector. Recent hiccups in auto sector output have had a noticeable effect on overall economic performance.

“The key to further improvement is to bring activities with a higher added value to the country, for example, R&D,” Zoltan Torok at Raiffeisen Bank noted to bne IntelliNews earlier this year. A recent announcement that Samsung will invest HUF100bn (€322mn) in a plant to produce electric vehicle batteries close to Budapest seems an encouraging step.

At the same time, the tightening labour market is becoming a serious challenge to further expansion. Budapest will only see ever greater need to rethink its strategy regarding higher education if it is to push down the building skill mismatch index.

Race

Meanwhile, Hungary’s neighbours are also ready to compete as they gear up for investment in electromobility. While electric cars have been somewhat slow to take off in the Czech Republic, Prague is now accelerating its efforts to catch up. Slovakia - the biggest car producer per capita in Europe and the winner of Jaguar Land Rover’s €1.4bn investment announced last year – is reportedly negotiating on an investment US manufacturer Tesla Motors, over a potential major plant in Europe.

Poland announced on September 20 that it plans financing programmes to boost the number of electric cars on its roads to as many as 1mn by 2025. According to the plan, between 2021 and 2025 “electric transport will become a constant element of Polish cities” and “strong industrial players working for the Polish electric vehicles segment will be created.”

In the meantime, Hungary already added some regulatory incentives in order to promote e-cars. Green licence plates– given to electric, hybrid and other zero-emission vehicles - have been introduced and legislation on the installation and operation of charging facilities has been simplified. Electric vehicles can be parked for free, they can use bus lanes and owners are entitled to tax benefits.

Although the number of electric and hybrid cars tripled in the first half of the year in Hungary - jumping from 361 in January to 932 in June - demand clearly remains modest. The high price of the cars, which cost 41% more on average than a standard car, is clearly a leading factor here, according to a report by consultants IFUA Horvath & Partners.

That is the point the government is looking at. Budapest will pump in HUF2bn in 2016 and HUF3bn next year to help purchasers. The state will finance up to 21%, or HUF1.5mn, of the gross purchasing price.

How many Hungarians that will tempt to rush to their local electric car showroom is debateable. At an average of at least HUF8-9mn (€25,900-29,000), sticker prices are stiff compared with the average Hungarian gross wage of HUF256,900 (€832).

The government does so sure about the outcome either. Earlier this year, Varga claimed that the goal set by the Jedlik plan is to have 50,000 e-cars on Hungarian roads by 2020. By the time of the announcement of the new incentive, however, he had revised his estimate to just 30,000.