BMW picks Hungary to build its next European plant with a €1bn investment

BMW picks Hungary to build its next European plant with a €1bn investment
The site for BMW's future plant in Debrecen
By bne IntelliNews August 1, 2018
German car manufacturer BMW is to build a €1bn factory for the production of conventional and electric cars in the eastern Hungarian city of Debrecen, Hungary’s Foreign Affairs and Trade Minister Peter Szijjarto announced on July 31.

The factory, constructed on a 400-hectare plot on the city's outskirts, will turn out conventional and electric cars using the most modern technology. BMW will have capacity to manufacture 150,000 vehicles a year and will start off with 1,000 employees. 

BMW, one of the world's largest and most cutting-edge carmakers, decided to increase production capacity in Europe and chose Hungary after having considered several European cities over a 14 month period, Szijjarto said. 

There were other Hungarian cities vying for the investment, including Miskolc, not far from Debrecen and near the Slovakian border, local media reported. Slovakia and Romania were also in the race to host the investment.

BMW is the third premium car maker after Audi and Mercedes to establish a production facility in Hungary, which has become a major car producer over the years.  

Although efforts have been made to diversify the economy and strengthen other areas, such as machinery production, electronics or pharmaceutical companies, the vehicle sector remains the number one driver of Hungary’s industry. It accounts for 5% of the country’s GDP, 17% of all industrial output and one-third of the exports.

After the investment, the latter figure could jump to 40%, which not only reflects the importance of the sector but also highlights the inherent risks of overdependence on carmakers' performances.

BMW’s investment comes at a time when Hungary faces a decline in EU transfers after 2020. The question is the top priority of economic decision makers.

Hungary changed its investment policy to put the focus on attracting high-added value investments with cash grants and subsidies, and various plans have been submitted on how to increase the competitiveness of local manufacturers. No details were given on subsidies provided by the state to BMW.

Analysts say the investment could lift Hungary’s GDP by 0.5pps, or HUF250bn, which would be crucial for meeting the 4% growth target of the government set out in the convergence programme from 2018 until 2022,

The BMW factory could generate HUF900bn annual revenue when it reaches full capacity, which will further boost exports. The investment will trigger second round positive impacts on the economy of Hungary’s second-largest city, including tourism, education, infrastructure development and the housing market. Investors snapped up properties at bargain prices in Paks when Hungary and Russia clinched a deal on the expansion of the nuclear power plant there.

Analysts also highlighted that BMW picked a city situated in the eastern part of Hungary, a less affluent region compared to Gyor, where Audi has its base, or Szentgotthard, where Opel manufactures engines.

One major challenge facing BMW will be to recruit staff. Companies in all industries face major labour shortages and it will be especially hard to find highly qualified engineers.

In a press release, BMW said Debrecen is "the ideal place" for the group to expand its production network, citing good infrastructure, suitable logistics connections, proximity to an established supplier network and the qualified local labour pool.

BMW said it enjoys "long-standing, positive relations" with suppliers in Hungary, noting that it purchased materials and services worth €1.4bn in the country last year. 

"The plant in Debrecen will set new standards in digitalisation, sustainability and flexibility. In addition, it will be a technology leader, with innovative solutions for automation, state-of-the-art assistance systems and flexible logistics applications," BMW said.