Hungary gave €800mn grant to lure Chinese gigafactory, according to Chinese media

Hungary gave €800mn grant to lure Chinese gigafactory, according to Chinese media
The signing of the investment by CATL, the world’s largest EV battery maker. / bne IntelliNews
By Tamas Csonka in Budapest February 8, 2023

Hungary offered €800mn in grants, tax breaks, and infrastructural support to the €7.4bn greenfield investment by the world’s largest EV battery maker CATL, which is building its second European production facility in the eastern Hungarian industrial hub of Debrecen, said an opposition MP, citing Chinese media.

The alleged size of the government subsidy demonstrates Hungary's aggressive strategy for luring FDI over past few years, particularly from Asia and in the battery sector, which the government sees as strategic.

Hungary has the fourth-biggest electric battery production capacity in the world, after China, the United States and Germany. The Hungarian government sought to attract the world's leading EV battery producers and suppliers to diversify dependence on traditional vehicle manufacturing.

Hungary began negotiations with CATL two and a half years ago, when the company was still unsure of the location of its giga investment, according to a Facebook post by Marton Tompos of the liberal Momentum party on social media.

Poland and Serbia were also in the race, but then the Hungarian government unveiled a lucrative offer to "save the investment". Altogether, the Orban government offer came to €800mn in grants, and tax and infrastructure incentives. Hungarian media reports earlier put the size of the financial aid, including infrastructure investments around the site, at around €277mn.

The government has yet to disclose details of the aid, citing the ongoing notification process with the European Commission, which will check whether any subsidies were excessive.

The world’s leading battery maker, controlling around a third of the global market, announced in August that it will set up a 100 GWh plant in the industrial park of Debrecen on 221 hectares, not far from BMW’s new e-car factory under construction, creating 9,000 new jobs. The value of the project by CATL alone is bigger than the entire sum of investments made by dominantly Asian manufacturers in this field.

Battery production capacities in Germany are set to rise to 369 GWh by 2031, according to Chinese reports, followed by Hungary with 207 GWh. Debrecen alone will account for more than half of that capacity with 130 GWh as German premium carmaker BMW also announced to build an EV battery plant along a car plant under construction, doubling its initial €1bn investment.

Debrecen, Hungary’s second-largest city, has become a major automotive hub, attracting billions of euros of investments. It is home to top Tier 1 suppliers, such as Germany's ThyssenKrupp and Schaeffler Group and EV battery suppliers such as EcoPro.

The broader region of Debrecen near the Romanian border is one of the less developed parts of Hungary, investments here enjoy a 50% aid intensity, the highest level in the EU.

In 2018, fDi Intelligence, a research and analysis agency of the Financial Times, ranked Debrecen as the best European small city in terms of investment promotion strategy.  In 2021, it was ranked among the top 10 best investment promotion destinations in the world, an accolade also given to cities such as New York, Hong Kong, Berlin and Dubai, among other cities. At the CEE Business Services Awards 2021, Debrecen was named 'Emerging City of the Year'.

The construction has come under intense criticism for its environmental impact. Local residents have angrily expressed their objections to the factory at public hearings and protests were held.

According to studies, the Debrecen factory will require 60,000 cm of water daily, enough to fill 87,600 Olympic swimming pools in a year, more than the consumption of the city of 200,000 and annual electricity consumption will total 4 GW or a quarter of the production of Hungary’s sole nuclear power plant.

The construction of the gigafactory has become a hot political topic as opposition parties are planning to collect signatures to hold a referendum on the project. But there is a division between them. Green party LMP submitted a national referendum initiative so that a battery factory can only be built in Hungary where the local population agrees to it. Liberal Momentum and radical right-wing Our Homeland (Mi Hazank) each vowed to initiate a local referendum on the matter.