Foreign investments spark surge in Serbia's auto parts manufacturing

Foreign investments spark surge in Serbia's auto parts manufacturing
Japanese JFE Shoji Corporation started construction on a €50mn factory in Indjija for producing metal components for electric motors in March. /
By bne IntelliNews May 6, 2024

Every month sees multiple announcements of new factories or investments into expanding existing factories to produce car parts in Serbia, which is becoming an increasingly important part of European automotive supply chains. 

Today, nearly half of Serbia's top 20 largest exporters are manufacturers of auto parts and components, according to data reported by Marko Cadez, the president of the Serbian Chamber of Commerce and Industry, at the Digital AutoTech Forum in April. 

Currently, more than 200 companies employ around 100,000 people in the Serbian car parts industry, with most production oriented towards foreign buyers, according to the chamber. Germany is the top destination for Serbian auto parts, according t Cadez, who said 50% of Serbian exports to Germany consist of products from the mobility sector. 

On top of the international investments, there are many Serbian companies that are part of international car companies’ supply chains. 

Roots in Kraguejvac 

The roots of Serbia’s automotive industry lie in the city of Kragujevac. Serbia's fourth-largest city was formerly the centre of the Yugoslavian auto-making industry, home to the Zastava car plant that produced Fiats as well as its own models during the Cold War. 

Production almost stopped during the wars of the 1990s, but the plant was later taken over by Fiat Chrysler Automobiles (later Stellantis) under a joint venture with the Serbian state. 

Today, automotive is one of the manufacturing segments experiencing the greatest FDI inflows in Serbia, where the government has sought to stimulate export-oriented manufacturing. 

The local market for new cars is not that large, given Serbia’s relatively small population of around 6.6mn people, and low spending power compared to Central or Western Europe. Approximately 30,000 new vehicles were sold within the country in 2023, according to data shared by Toyota Serbia. Meanwhile, around one quarter of the cars on the roads in the country are imported used cars from countries such as Germany and Italy. 

Multiple investments 

Instead, Serbia and other Western Balkan countries are following the path established by Central Europe that emerged as a prominent manufacturing and services hub early in the transition period. 

Serbia and North Macedonia in particular have become attractive destinations for auto parts manufacturing for export. Investors are lured in by a combination of low costs, available workers and government incentives for investments. 

Within just the last two months, China’s Jiangsu Lianbo Precision Technology has opened its first European factory near Novi Sad on April 25 with an €80mn investment. The company produces metal parts (rotors and stators) for all types of engines in the automotive industry.

Japanese JFE Shoji Corporation started construction on a €50mn factory in Indjija for producing metal components essential for electric motors in March. As for Jiangsu Lianbo Precision Technology, this is JFE Shoji Corporation’s inaugural European venture. 

Funded with an investment totalling approximately €50mn, the factory will focus on producing metal parts for electric motors, including rotors and components for major automotive brands. JFE Shoji Serbia also collaborates with established Japanese firms Toyo Tires and Nidec, which are already operating in Serbia.

The mayor of Cacak, central Serbia, announced that German metal industry giant PWO is set to start the construction of a large factory in May. PWO, a key player in the metal industry sector, already operates plants for manufacturing automotive components in Germany and Czechia.

Local companies have also been active. Feka Automotive, a Serbia-based producer of automotive lighting, plans to enhance its operational efficiency and ramp up the availability of dependable lighting devices globally, using a €15mn loan from the European Bank for Reconstruction and Development (EBRD).  

Feka, a subsidiary of Turkish Feka Otomotiv AS, has supply contracts with automotive giants like Toyota, Volkswagen and Stellantis. It plans to build a new energy-efficient production facility adjacent to its principal production site near Cuprija in central Serbia.

Other recent investments include Italian company Aunde opening a cutting-edge factory for production of automotive covers in the Serbian city of Leskovac in October 2023. Chinese automotive company Minth Automotive Europe announced plans for an additional manufacturing facility in the Serbian town of Sabac, which will focus on the production of aluminium and battery housing components tailored to electric vehicles (EVs). Auto-Kabel, a company that produces power conductors for the automotive industry, announced in May 2023 it was building a new factory in Serbia’s Mionica, with plans to hire an additional 300 workers. Continental Automotive Serbia opened a new factory in the city of Novi Sad in February 2023. 

Nearshoring destination 

The Western Balkan countries are experiencing a surge in investment, driven by factors including the post-pandemic economic recovery and increasing costs in Central Europe. This region, historically trailing behind Central Europe, is now emerging as an attractive destination for export-oriented and consumer-focused businesses.

Following the footsteps of Central European nations, Southeast Europe is becoming a hub for industries such as automotive manufacturing, benefiting from lower costs and proximity to Western European markets. The shift eastward in the auto industry, driven by lower labour costs and favourable geographic positioning, has accelerated due to labour shortages and economic constraints in Central Europe.

The region's proximity to Western and Central Europe, along with the EU candidate status of its countries, makes it appealing to international firms seeking manufacturing locations. 

Where Serbia has done particularly well is in offering a predictable regime to international investors. The EBRD’s head of Western Balkans, Matteo Colangeli, told bne IntelliNews in a recent interview that one “important factor in securing investment flows is the ability not only to promote the country but also to deliver on an individual investor basis”.

“Serbia is very efficient in terms of negotiating deals with investors and delivering on those deals in a timely and reliable manner. A lot of German companies are in Serbia because those who came first found a reliable partner, and that attracted more. Success stories breed more success, and vice versa,” said Colangeli. 

Moving up a level 

The Western Balkans region does undoubtedly face challenges such as the ongoing emigration of educated and skilled individuals and the need for reforms to improve the business environment, education, and infrastructure.

Still, the investments into Serbia’s auto components sector continue, and not only that but the country has increasingly moved into the electro-mobility space. 

In 2022, US-based EV manufacturer Rivian has opened a technological centre in Belgrade. Stellantis, owner of the automotive factory at Kragujevac, has started preparing to switch to electric car production.

In September 2023, Slovakia’s InoBat signed a memorandum of understanding (MoU) with Serbia's Ministry of Finance and Cuprija municipality to construct a gigafactory and recycling plant.

InoBat specialises in custom electric batteries for industries such as automotive, commercial vehicles, motorsport and aerospace. Project Lion, as the Serbian project is dubbed, has secured a €419mn incentives package from the Serbian government. The facility will manufacture energy storage solutions (ESS) and EV batteries, with recycling facilities, in line with InoBat's "cradle to cradle" (C2C) circular value-chain platform.

Since then, it has been reported that suppliers of Tesla and Chinese electric car manufacturer BYD are also eyeing production facilities in Serbia, attracted by the growing European market for EVs.